Context 2: United Kingdom Balance of Payments on Current Account

Extract A: Summary of the United Kingdom's balance of payments on current account, 2018 to 2023 (£ billion)

Extract B: The United Kingdom's persistent current account deficit

The UK has historically run a persistent deficit on the current account of its balance of payments. This deficit is largely driven by a substantial deficit in the trade of goods, which is only partially offset by a surplus in the trade of services, such as financial and professional services. Additionally, net secondary income (including government transfers and international aid) remains structurally negative. The net primary income account, which measures interest, profits, and dividends flowing into and out of the country, has also fluctuated, occasionally worsening the overall deficit when foreign assets in the UK yield higher returns than UK assets held abroad.

Some economists argue that a persistent current account deficit is unsustainable, as it requires foreign capital inflows to finance the gap, potentially leaving the economy vulnerable to sudden stops in foreign investment. Others suggest it merely reflects the UK’s attractiveness as an investment destination.