Latest EU Trade Figures: Over £100bn UK-EU Deficit

The ONS has recently released the UK Balance of Payments figures for the last quarter. They show an astounding, growing > £100bn pa deficit with the EU! http://www.ons.gov.uk/ons/rel/bop/balance-of-payments/q1-2015/stb-balance-of-payments--quarter-1--jan-to-mar--2015.html#tab-Current-account-with-EU-and-non-EU-countries--Table-C-

Reply 1

MatureStudent36

5

Original post by newpersonage

The ONS has recently released the UK Balance of Payments figures for the last quarter. They show an astounding, growing > £100bn pa deficit with the EU! http://www.ons.gov.uk/ons/rel/bop/balance-of-payments/q1-2015/stb-balance-of-payments--quarter-1--jan-to-mar--2015.html#tab-Current-account-with-EU-and-non-EU-countries--Table-C-

And what do you think that means?

Reply 2

Jooooshy

17

Original post by MatureStudent36

And what do you think that means?

What does it mean?

Reply 3

MatureStudent36

5

Original post by Jooooshy

What does it mean?

It means that we did less trade with Europe when there was the EU crisis on.

Reply 4

Jooooshy

17

Original post by MatureStudent36

It means that we did less trade with Europe when there was the EU crisis on.

Why has OP described it as astounding? Sounds like bad news to me!

Reply 5

Good bloke

19

Original post by Jooooshy

What does it mean?

Well, it could mean that the British economy is better shape than that of the EU as a whole, with the British in a position to buy goods but with the other Europeans not so well off and unable to buy British goods. If so, it obviously holds back the UK recovery until such time as the other Europeans are in a healthier state.

That hypothesis is would need confirmation by reference to earlier EU-UK trade figures. Do you have them?

Reply 6

Jooooshy

17

Original post by Good bloke

Do you have them?

http://www.ons.gov.uk/ons/publications/index.html?&newquery=balance+of+payments+2014&content-type=Article&content-type=Book&content-type=Journal&content-type=Report&content-type=Statistical+bulletin&content-type-orig=publicationContentTypesOriginal&pageSize=50&applyFilters=true&sortBy=title%2CeditionSubtitle&sortDirection=ASCENDING

Reply 7

MatureStudent36

5

Original post by Jooooshy

Why has OP described it as astounding? Sounds like bad news to me!

It's difficult to get a meaningful assessment when the euro crisis couldn't be influenced by UK government or industry's.

Reply 8

newpersonage

OP

6

Original post by Jooooshy

What does it mean?

It means that we are importing far more from the EU than we export to them and that more money is flowing out of UK to EU than vice versa. Given that the transfers are measured in pounds, this means that there is a continuous loss of capital from the UK to the EU (£100bn pa). This makes us poorer.

A continuous balance of payments deficit, over years, means that the UK economy will become distorted. Given that much of the deficit is in manufactures, the UK economy will become service oriented:

If the UK cannot make up the deficit with the EU by a trade surplus with non-EU economies it must either borrow money or devalue. Much of the UK's excess borrowing is due to our appalling trade relationship with the EU.

Reply 9

footstool1924

2

Original post by newpersonage

A continuous balance of payments deficit, over years, means that the UK economy will become distorted. Given that much of the deficit is in manufactures, the UK economy will become service oriented:

We are already service orientated, with some figures putting it at around 75%.

Reply 10

Quady

20

Original post by newpersonage

It means that we are importing far more from the EU than we export to them and that more money is flowing out of UK to EU than vice versa. Given that the transfers are measured in pounds, this means that there is a continuous loss of capital from the UK to the EU (£100bn pa). This makes us poorer.

A continuous balance of payments deficit, over years, means that the UK economy will become distorted. Given that much of the deficit is in manufactures, the UK economy will become service oriented:

If the UK cannot make up the deficit with the EU by a trade surplus with non-EU economies it must either borrow money or devalue. Much of the UK's excess borrowing is due to our appalling trade relationship with the EU.

Are you mixing up 'balance of payments deficit' and 'current account deficit'?

We aren't devaluing, we are appreciating if you hadn't noticed...

Reply 11

newpersonage

OP

6

Original post by Quady

Are you mixing up 'balance of payments deficit' and 'current account deficit'?

We aren't devaluing, we are appreciating if you hadn't noticed...

The current account deficit is influenced by the balance of payments deficit because the government usually issues bonds to stabilise the currency. However, the two are not the same and I am not mixing them up. The main effect of the balance of payments deficit is to reduce real wages compared with what they would be without the deficit and to imbalance the economy.

The financial crisis in 2008 triggered a large devaluation:

Click on the graph to see pound vs dollar.

(edited 8 years ago)

Reply 12

Ace123

2

More evidence the EU is dependent on UK trade & that after Brexit the UK will get a free trade deal with the EU, the EU nations would all go bankrupt without UK trade conversely the UK does not rely on EU trade, £100 billion is a gigantic deficit & is very damaging to UK businesses that so many EU goods are imported rather than making goods in the UK

Reply 13

Quady

20

Original post by newpersonage

The current account deficit is influenced by the balance of payments deficit because the government usually issues bonds to stabilise the currency. However, the two are not the same and I am not mixing them up. The main effect of the balance of payments deficit is to reduce real wages compared with what they would be without the deficit and to imbalance the economy.

The financial crisis in 2008 triggered a large devaluation:

Click on the graph to see pound vs dollar.

The capital inflows are largely not due to gilt purchases though are they? We had a large current account deficit when we have a public sector fiscal surplus so how does that argument work? :s-smilie:

The '08 crisis triggered a large devaluation - what point are you making there? The years preceding it we had a large current account deficit and the currency appreciated. You got $1.10 to the pound in 1985, there's no trend compared to the current account or balance of payments deficit going on with the comparison.

Reply 14

Quady

20

Original post by Ace123

More evidence the EU is dependent on UK trade & that after Brexit the UK will get a free trade deal with the EU, the EU nations would all go bankrupt without UK trade conversely the UK does not rely on EU trade, £100 billion is a gigantic deficit & is very damaging to UK businesses that so many EU goods are imported rather than making goods in the UK

So the EU never wanted a currency union with us? :s-smilie:

Reply 15

newpersonage

OP

6

Original post by Quady

The capital inflows are largely not due to gilt purchases though are they? We had a large current account deficit when we have a public sector fiscal surplus so how does that argument work? :s-smilie:

The '08 crisis triggered a large devaluation - what point are you making there? The years preceding it we had a large current account deficit and the currency appreciated. You got $1.10 to the pound in 1985, there's no trend compared to the current account or balance of payments deficit going on with the comparison.

A chronic balance of payments deficit should, at a superficial level of analysis, create a steady devaluation in the currency because the UK's foreign exchange holdings should be falling. (The UK would then be forced to pay for goods in pounds and hence flood the market, devaluing the pound) I agree that apart from the step change 7 years back there is little evidence of devaluation happening. Why?

If the Government or Bank were issuing gilts in exchange for foreign currency this would prop up the pound, perhaps unintentionally.

Another explanation might be that those who export to the UK are happy to take pounds in payment and are stashing these away somewhere as foreign exchange reserves. Perhaps currency speculators are doing the same and speculators are also buying up the UK.

I suspect that both of these have been happening but that the second possibility is now predominant. However, I would be worried if I were a speculator sitting on a heap of pounds, given the UK's net international investment position coupled with the balance of payments being in deficit.
Figure 2: Net international investment position, percentage of GDP, current price, seasonally adjusted

http://www.ons.gov.uk/ons/rel/bop/balance-of-payments/q3-2014/sty-current-account--income-balance-and-net-international-investment-position.html

Overseas investments on the UK account are at a record low. The situation is peculiar or "interesting" as the ONS put it..
The ONS explanation is:

"To analyse these movements further, earnings on investment can be related to the stock of assets held and the rate of return on those stocks. As previously mentioned, UK residents have been receiving lower income on their overseas Foreign Direct Investment (FDI). As a proportion of GDP, this income received has fallen from 6.8% in Q2 2011 to 3.8% in Q3 2014, and this can be attributed to changes in the stock of assets UK residents’ hold, as well as their rates of return on those assets. Stock holdings of these foreign FDI assets has fallen sharply from 92% annual GDP in Q4 2008 to 67% in the 2014 data. In contrast, foreign residents have continued to expand their holdings of UK assets, a phenomenon that may be linked to the strength in the UK’s recent recovery. Similarly, foreign residents have owned higher amount of UK debt securities than UK residents since 2003. The rates of return for UK residents on foreign debt securities have also been below foreign residents’. This may explain the deterioration in the debt security balance and the worsening of the UK’s current account position."

This inbound investment is fine until it stops and the investors sit back and expect interest/rent/lease payments, or, worse still, panic and sell off their assets.