The Current Account in the Balance of Payments Flashcards
What does the current account track?
The flow of expenditure on goods, services, and income between residents and the rest of the world.
What does the current account measure?
Whether a country is earning sufficient income from its exports to cover its imports.
What are the main components of the current account?
- Trade Balance
- Primary Income Flows
- Secondary Income Flows
What is included in the Trade Balance?
- Goods
- Services
What are Primary Income Flows?
Investment income such as profits, dividends, and interest payments from international investments.
What are Secondary Income Flows?
Net current transfers such as remittances, foreign aid, or contributions to international organisations.
Why is the current account significant?
- Reflects international competitiveness
- Indicates living within means or reliance on external financing
- Persistent deficits or surpluses signal structural economic issues
What was the average current account balance as a percentage of GDP for the UK from 1948 to 2023?
-1.09% of GDP
What was the peak surplus for the UK’s current account and in what year?
+2.8% in 1950
What was the peak deficit for the UK’s current account and in what year?
-5.4% in 2016
What was the UK’s current account deficit in 2023?
£53.3 billion (2% of GDP)
What is the balance of trade in goods and services?
- Goods: Physical products traded internationally
- Services: Intangible trade
What contributed to the UK’s goods deficit in 2014?
Reliance on imports.
What were the figures for the UK’s goods and services in 2014?
- Goods deficit: £123 billion
- Services surplus: £89.14 billion
What were the figures for the UK’s goods and services in 2023?
- Goods deficit: £187.7 billion (6.9% of GDP)
- Services surplus: £172.6 billion (6.3% of GDP)
What does net primary income reflect?
Income from investments abroad versus payments to foreign investors in domestic assets.
What can declining foreign earnings do to the current account?
Widen the current account deficit.
What was the net primary income flow for the UK in 2014?
-£33.1 billion
What was the net primary income flow for the UK in 2023?
£18.3 billion (0.7% of GDP)
What do secondary income flows include?
Unilateral transfers like remittances, aid, and contributions to international institutions.
What is a trade deficit?
Imports > Exports
What is a trade surplus?
Exports > Imports
What does positive net primary income indicate?
Strengthens the current account.
What must persistent current account deficits be balanced by?
Inflows on the capital and financial accounts.
