Aims and Objectives

Aim: Understand the UK current account Objectives: Define UK current account Analyse the UKs import and export destinations Evaluate the importance of the UK current account

Starter
Define the balance of payments. Does the UK currently have a balance of payments?

Is this a good thing or a bad thing for the UK economy?

UK Current Account
Measures the flow of income into and out of the economy. Four main parts: 1) Balance of trade in goods 2) Balance of trade in services 3) Income Balance income earned on assets overseas minus income earned from foreign owned assets in UK. 4) Net Transfers foreign aid, transfer to EU budget

UK Current Account 2008

m Export of goods 251,102

Import of goods
Export of services Import of services Balance of trade in goods and services Income Balance Net Transfers

343,979
170,399 115,920 -38,398 26,940 -13,610

Top 10 UK Export Destinations 2008

Sweden, 2.10% Italy, 3.70% Spain, 4.10% Belgium/ Luxembourg, 5.40% Germany, 11.10% France, 7.20% China, 2.00% USA, 14.10%

Ireland, 7.60%

Netherlands, 7.90%

Top 10 UK Import Sources 2008

Spain, 3.10% Ireland, 3.60% Italy, 4.10% Belgium/ Luxembourg, 5.00% USA, 7.50% Germany, 12.90%

Norway, 6.30%

Netherlands, 7.50% France, 6.70% China, 6.70%

Top 10 UK Exports by Commodity 2008 (m)

Specialised Machinery Organic Chemicals Transport Equipment Electrical Machinery Industrial Machinery Misc. Manufactures Power Generating Equipment Pharmaceuticals Road Vechiles Oil

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

Top 10 UK Imports by Commodity 2008 (m)

Pharmaceuticals Power Generating Equipment General Industry Machinery Clothing Electrical Machinery Office Machines Telecomms Equipment Misc. Manufactures Road Vechiles Oil
0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00 40,000.00

Trade in Goods and Services 2010

Current Account Balance 2010

Current Account Analysis General Observations

Fluctuations tend to be counter-cyclical, they follow opposite course of business cycle. Because. During a recovery demand for M will increase due as domestic capacity is constrained, whilst domestic firms concentrate on booming home markets. Strong GDP growth between 1997-2007 accounted for deficit as UK consumers incomes grew, imported more. Opposite true in downturn.

1996-1998
CAB improved Due to rapid growth of overseas markets such as the US which led to a surge in investment income in 1998 and exports of services.

1999-2003
Investment income declined following Asian crisis and the rise in the value of the . Between 2001-2003 global economic growth slowed and the value of remained strong. Current account remained in deficit, however narrowed due to income surplus.

2004-2006
Balance worsened The increase in the value of against the $ was the main reason the deficit was so high

2007-2008
Deficit narrowed by 6.1bn in 2007 and 12.6bn in 2008. Trade in services and income outweighed deficit in trade of goods.

Evaluation: Does the current account deficit matter?

Read the Article. What does the current account deficit mean for the UK economy? Does it matter?

Plenary
Discuss whether you feel trade with developing countries is necessary for the UK economy to grow.