Balance of payments, UK: October to December 2022

• The underlying UK current account deficit narrowed to £21.1 billion or 3.3% of gross domestic product (GDP) in Quarter 4 (Oct to Dec) 2022, a fall from the £26.3 billion (4.2% of GDP) deficit the previous quarter. 

• When trade in precious metals is included, the UK current account deficit narrowed to £2.5 billion, or 0.4% of GDP in Quarter 4 2022.

• In Quarter 4 2022 the total trade deficit increased to £25.4 billion from £24.1 billion in the previous quarter; the goods deficit widened by £1.4 billion to £63.9 billion and the services surplus rose by £0.2 billion to £38.5 billion.

• The lower current account deficit in Quarter 4 2022 was due to a £6.9 billion widening of the primary income account surplus position, to £9.8 billion, or 1.5% of GDP, as credits from direct investment abroad continued to recover, especially in the energy sector.

• In Quarter 4 2022, the UK was a net borrower from the rest of the world recording a net financial inflow of £13.3 billion.

• The UK's net international investment liability position widened to £271.6 billion following a narrowing to £112.1 billion in the previous quarter.

The UK’s current account balance is a measure of the country’s balance of payments with the rest of the world in trade, primary income and secondary income.

Table 1 summarises the latest current account data for Quarter 4 (October to December) 2022.

Notes:

1. Current account and trade figures exclude trade in precious metals.

The underlying UK current account deficit excluding precious metals narrowed in Quarter 4 2022 to £21.1 billion (3.3% of GDP) from a deficit of £26.3 billion (4.2%) in the previous quarter.

Trade

The total trade deficit increased from £24.1 billion, 3.8% of gross domestic product (GDP), in Quarter 3 (July to Sept) 2022 to £25.4 billion (4.0% of GDP) in Quarter 4 2022. The Trade in goods deficit increased by £1.4 billion in Quarter 4 2022, compared with the previous quarter, to £63.9 billion or 10.0% of GDP. The trade in services surplus recorded a smaller increase of £0.2 billion to £38.5 billion or 6.0% of GDP.

Figure 3: Both imports and exports of goods fell in Quarter 4 2022

Changes in imports and exports of goods, excluding unspecified goods, £ billion Quarter 3 (July to Sept) 2022 to Quarter 4 (Oct to Dec) 2022

Notes:

1. Caution should be taken when interpreting these data as HM Revenue and Customs changed the collection methods for EU trade in January 2021 and January 2022. Our article, Impact of trade in goods data collection changes on UK trade statistics: 2020 to 2022 and further information in our UK Trade bulletin, provide more detail. For more information, please see Changes affecting UK trade statistics in Section 7: Measuring the data.

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The trade in goods deficit increased to £63.9 billion in Quarter 4 2022. Both imports and exports fell, but exports to a greater extent.

Goods imports fell by £3.8 billion because of a £9.1 billion fall in other fuel imports, to £10.5 billion from £19.6 billion in the previous quarter. The large decrease in the value of gas imports in Quarter 4 2022 reflected falling gas prices after the peak recorded in August in the System Average Price (SAP) of gas, as reported in our dataset. Partially offsetting this was an increase in the import of finished manufactured goods by £3.6 billion and semi-manufactured goods by £2.3 billion.

Goods export levels decreased by £5.2 billion to £96.6 billion, as other fuels trade decreased by £2.5 and semi-manufactured goods trade decreased by £2.3 billion compared with the previous quarter.

Primary income

The primary income account records income the UK receives and pays on financial and other assets, along with compensation of employees.

The primary income account recorded a surplus position of £9.8 billion, or 1.5% of GDP, in Quarter 4 2022. Net earnings from direct investment rose by £9.9 billion in Quarter 4 2022 as credits continued to recover mainly because of the energy sector; credits increased by £3.6 billion while debits decreased by £6.2 billion. Within other investment, earnings on both credits (£26.1 billion) and debits (£30.7 billion) continued to increase despite investors withdrawing deposits, as global banking interest rates continued to increase over the quarter.

Secondary income

The secondary income account shows current transfers between residents and non-residents.

The secondary income deficit increased to 0.9% of GDP, as the UK continued to make payments to the EU, agreed as part of the financial settlement under the withdrawal agreement.

A current account deficit, which the UK has experienced each year since 1984, places the UK as a net borrower with the rest of the world, indicating that overall expenditure in the UK exceeds national income. The UK must attract net financial inflows to finance its current (and capital) account deficit. This can be achieved through either disposing of overseas assets to overseas investors or accruing liabilities with the rest of the world.

The financial account recorded a net inflow of £13.3 billion in Quarter 4 (Oct to Dec) 2022 having recorded a net inflow of just £2.0 billion in Quarter 3 (July to Sept).

UK resident foreign assets fell by £269.6 billion in Quarter 4 2022 as UK investors recorded net withdrawals of deposits abroad of £180.5 billion and non-residents paid down loans by £139.9 billion. Meanwhile, portfolio investment recorded an increase in UK assets of £50.6 billion. This was because UK investors bought £34.5 billion of foreign shares and £16.0 billion of foreign debt securities.

Net incurrence of UK liabilities decreased by £256.3 billion in Quarter 4 2022. UK liabilities of other investment to the rest of the world decreased as non-residents withdrew £206.0 billion in deposits from UK institutions. Non-resident direct investment into the UK also decreased by £32.8 billion as debt instruments were repaid to parent companies.

The international investment position (IIP) examines the UK’s balance sheet with the rest of the world, measuring the difference between the net stock of assets and liabilities.

In Quarter 4 (Oct to Dec) 2022, the IIP recorded an increase in the value of its net liability position to £271.6 billion from £112.1 billion in Quarter 3 (July to Sept) 2022. The Quarter 3 value reflected a short-term depreciation of the British pound against other currencies but has now strengthened against most major currencies in Quarter 4.

The UK asset position decreased by £1,083.7 billion in Quarter 4 2022 and was valued at £14,037.7 billion at the end of the period. The value of the UK liability position with the rest of the world fell by a smaller amount of £924.2 billion to £14,309.3 billion. 

Balance of payments

The balance of payments is a statistical statement that summarises transactions between residents and non-residents during a period. It consists of the current account, capital account and financial account.

Current account

The current account is made up of the trade in goods and services account, the primary income account and the secondary income account. The difference in the monetary value of these accounts is known as the current account balance. A current account balance is in surplus if overall credits exceed debits, and it is in deficit if overall debits exceed credits.

Capital account

The capital account has two components: capital transfers and the acquisition (purchase) or disposal (sale) of non-produced, non-financial assets.

Capital transfers are those involving transfers of ownership of fixed assets, transfers of funds associated with the acquisition or disposal of fixed assets, and cancellation of liabilities by creditors without any counterparts being received in return. The sale or purchase of non-produced, non-financial assets covers intangibles such as patents, copyrights, franchises, leases and other transferable contracts, and goodwill.

Financial account

The financial account covers transactions that result in a change of ownership of financial assets and liabilities between UK residents and non-residents. For example, the acquisitions and disposals of foreign shares by UK residents. The accounts are presented by the functional categories of direct investment, portfolio investment, other investment, financial derivatives and reserve assets.

International investment position

The international investment position (IIP) is a statement that shows at the end of the period the value and composition of UK external assets (foreign assets owned by UK residents) and identified UK external liabilities (UK assets owned by foreign residents). The framework of international accounts sets out that the IIP is also presented by functional category, consistent with primary income and the financial account.

Precious metals

In line with international standards, the Office for National Statistics' (ONS') headline trade statistics contain the UK's exports and imports of non-monetary gold. This trade can have a large effect on the size of and change in the UK's headline trade figures. This is because a substantial amount of the world's trade in non-monetary gold takes place on the London markets.

Further information on precious metals and their impact can be found in our UK trade bulletin.

Special drawing rights

Some International Monetary Fund (IMF) member countries have access to international reserve assets called special drawing rights (SDRs). A general allocation of SDRs, equivalent to approximately US$650 billion, became effective on 23 August 2021 and was allocated to participant countries in proportion to their existing quotas. The UK's SDR allocation was equivalent to $19,318 million and was received in August 2021.

Net errors and omissions

Although the balance of payments accounts are, in principle, balanced, in practice imbalances between the current, capital and financial accounts arise from imperfections in source data and compilation. This imbalance, a usual feature of balance of payments data, is labelled "net errors and omissions".

A more detailed glossary (PDF, 123KB) of terms used in the balance of payments is also available.

Data sources

Balance of payments statistics are compiled from a variety of sources, produced in the national accounts sector and financial accounts (SFA) framework. Some of the main sources used in the compilation include:

• overseas trade statistics (HM Revenue and Customs (HMRC))

• International Trade in Services Survey (ITIS) (Office for National Statistics (ONS))

• International Passenger Survey (ONS) – this was suspended between March 2020 and January 2021 because of coronavirus (COVID-19)

• Foreign Direct Investment Survey (ONS and Bank of England (BoE))

• various financial inquiries (ONS and BoE)

• Ownership of UK Quoted Shares Survey (ONS)

Trade is measured through both exports and imports of goods and services. Data are supplied by over 30 sources including several administrative sources, HMRC being the largest for trade in goods. ITIS, conducted by the ONS, is the largest single data source for trade in services.

The main source of information for UK foreign direct investment (FDI) statistics is the Annual FDI Survey; separate surveys are used to collect data on inward and outward FDI. This is combined with data from the BoE on the banking sector. The statistics in this bulletin are compiled using the asset and liability measurement principle, which uses residency as the main distinction between outward and inward investments. In line with our Developing foreign direct investment statistics: 2021 article, we have reviewed and developed the population and sampling frame of FDI businesses. These changes have been introduced for reference periods from Quarter 1 (Jan to Mar) 2020 onwards.

Changes affecting UK trade statistics

EU imports and exports of goods

In January 2022, HM Revenue and Customs (HMRC) implemented a data collection change affecting data on imports from the EU to Great Britain (GB). This followed a similar data collection change in January 2021 for data on exports of goods to the EU from GB.

Our article, Impact of trade in goods data collection changes on UK trade statistics: 2020 to 2022 provides more detail on the discontinuity between the two compilation methods.

We have applied adjustments to our estimates of goods imports from the EU for the period January to December 2021 to reflect the data collection change. These adjustments brought import and exports statistics onto a like-for-like basis in 2021. They were applied in line with the National Accounts Revisions Policy, into the Balance of Payments and GDP quarterly national accounts, UK: July to September 2022 and incorporated in UK trade: November 2022 on 13 January 2023. We published an article, Impact of trade in goods data collection changes on UK trade statistics: adjustments to 2021EU imports estimates, alongside our UK trade bulletin on 13 January 2023 summarising these adjustments to our estimates.

The full time series for goods imports from and exports to the EU contains a discontinuity from January 2021 resulting from the move from Intrastat to customs declarations. We are continuing to work with HMRC to consider possible options to account for this discontinuity. 

Staged Customs Controls

In 2021, the use of Staged Customs Controls (SCC) allowed customs declarations to be reported up to 175 days after the date of import for imports of non-controlled goods from the EU to GB. The UK government introduced full customs controls in January 2022, while July 2022 marked the first full month of data where delayed customs declarations submitted under SCC could not be included. Temporary arrangements still apply for imports of goods from Ireland to GB.

We published an Impact of trade in goods data collection changes on UK trade statistics: update on Staged Customs Controls article on 17 February 2023, summarising the latest analysis on the potential impact of SCC in the first six months of 2022 by comparing Office for National Statistics (ONS) estimates of UK goods imports from the EU with Eurostat estimates of EU goods exports to the UK.

We are continuing to work with HMRC to investigate the impact of SCC and consider any adjustments that may be required. We aim to provide a further update on our investigations into the impact of SCC on goods imports from the EU in June 2023.

EU exports in Quarter 1 2022

An operational change implemented by HMRC in January 2022 resulted in a break in the data time series for UK exports to the EU. Although this change does not affect data for March and future months, caution should be taken when interpreting Quarter 1 (Jan to Mar) 2022 data or any periods that include January 2022 data.

Quality and methodology

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in our Balance of payments QMI.

We will continue to produce our UK balance of payments statistics in line with the UK Statistics Authority's Code of Practice for Statistics and in accordance with internationally agreed statistical guidance and standards. This is based on the International Monetary Fund's (IMF's) Balance of Payments Manual sixth edition (BPM6) (PDF, 3.0MB), until those standards are updated.

Consultation on ONS release times

The Office for Statistics Regulation has finalised its consultation on release practices. The Office for National Statistics (ONS) has welcomed the findings, as detailed in the ONS response to the Office for Statistics Regulation's proposed change to 9.30am release practice. The ONS specifically noted that the release-time exemptions, which were granted during the coronavirus (COVID-19) pandemic, are now incorporated into the revised Code of Practice. As such, the Balance of Payments will continue to be published at 7am.