Components of the Balance of Payments
Trade in Goods
This component covers exports and imports of visible and finished goods, such as cars and computers. The UK typically has a deficit in this area due to:
Highlight: Deindustrialization has led to a decline in the UK's manufacturing industry, resulting in higher imports of goods from other countries.
Trade in Services
The UK performs well in this sector, often running a current account surplus. Key service areas include:
- Financial services
- Tourism
- Consultancy
- Merchant shipping
Example: The UK's financial sector provides services such as commissions, debt management, and investment services to foreign clients.
Primary Income
This component represents the net flow of profits, interest, and dividends from investments in other countries, as well as remittance flows from migrant workers.
Secondary Income
Secondary income includes net money transfers to international organizations, foreign aid, and other commitments.
Highlight: The UK's commitment to foreign aid (0.75% of GDP) contributes to the current account deficit.
The graph provided shows the UK's current account balance as a percentage of GDP from 1970 to 2021, illustrating the persistent deficit.
