A financial perspective on the UK current account deficit

| Publication date: 4 Nov 2015 | External Author(s): Lane, P R | JEL Classification: E01, F20, F40, F62 | Journal: National Institute Economic Review Issue 234 | Publisher: Sage Publications, London

A drop in net FDI investment income has been the primary factor in the recent deterioration in the measured UK current account balance, with the trade balance relatively stable. We argue that financial engineering (with little net impact on the underlying international investment position for the UK) may have contributed to the decline in net FDI investment income, such that the headline current account balance cannot be interpreted as a sufficient indicator of the state of the UK’s external position. A more granular analysis of cross-border financial linkages than is possible with currently-published data would be required in order to provide a comprehensive assessment of external sustainability.

Keyword tags: 
current account
financial globalisation
international investment income