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A Financial Perspective on the UK Current Account Deficit

Published online by Cambridge University Press:  01 January 2020

Philip R. Lane
Philip R. Lane*
Affiliation:
Trinity College Dublin and CEPR
*
E-mail: plane@tcd.ie
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Abstract

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.

Keywords

current accountfinancial globalisationinternational investment incomeE01F20F40F62
Type
The UK Economy
Information
National Institute Economic Review , Volume 234 , November 2015 , pp. F67 - F72
Copyright
Copyright © 2015 National Institute of Economic and Social Research

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Footnotes

This article is based on research funded by the Institute for New Economic Thinking (INET) and the Irish Research Council. I thank Katharina Bergant and Yannick Timmer for helpful research assistance.

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