The Balance of Payments part 1 (AS)

The balance of payments (BOP) is a record of all the financial transactions of UK residents and the rest of the world. Each year the Office for National Statistics (ONS) publishes the balance of payments in a document called the Pink Book. The cover is, as you might imagine, pink. This distinguishes it from the Blue Book, which is a record of the output of the economy.

It takes a considerable length of time to gather together all the necessary information for the Pink Book so the data is always a year or two old. For example as I write this in January 2013, the latest Pink Book covers only up to 2011. Data for 2012 will not be available until November.

The balance of payments is broken down into sections. The first half of the accounts is called the current account and at AS level this is the part we are interested in. The other parts are called the capital and financial accounts and these are covered at A2 level.

Balance of Payments part 2

The Current Account
In the table below we have the UK current account for 2009. A credit refers to money coming into the UK and a debit refers to money leaving the UK. On line a. we can see that exports of goods amounted to £251,102 million and imports £343, 979 million. Exports of goods are of less value than the imports of goods, leaving the country with a deficit in the trade of goods.

On line b. we can see that credits exceeds the debits so there is a surplus in the balance of trade in services.

The balance of trade in goods and services is subtotalled on line c.

Line d shows income flows such as dividends and interest earned by foreigners on investments in the UK and income earned by UK citizens investing abroad.

Line e shows transfers and this includes things like foreign aid sent abroad, funds sent by emigrants back to the UK or sent by immigrants overseas.

Line f shows the current account balance, which is the total of the four parts of the current account a+b+c+d.

From the latter years of the 18th century and throughout the 19th Britain was the workshop of the world. The majority of the world’s ships were built in the UK for example, but this is no longer the case as we can see in the following graph. Britain now relies on the banking and insurance industries exporting their services, but this is still not enough to avoid current account deficits, the last time there was a surplus was in the early 1980s.