UK Balance of Payments, The Pink Book: 2021

Balances between inward and outward transactions, providing a net flow of transactions between UK residents and the rest of the world and reports on how that flow is funded.

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Email Jamie Pritchard

Dyddiad y datganiad:
29 October 2021

Cyhoeddiad nesaf:
To be announced

1. Main points

  • The coronavirus (COVID-19) pandemic has had wide-ranging impacts on the UK's international transactions with the rest of the world, including on trade, investment income and financial flows.

  • There was a slight narrowing in the UK current account deficit to £55.9 billion or 2.6% of gross domestic product (GDP) in 2020, although there have been more pronounced impacts on the gross transactions of the UK with the rest of the world.

  • The total trade balance switched from a deficit of £20.7 billion or 0.9% of GDP in 2019 to a surplus of £4.3 billion or 0.2% of GDP in 2020, reflecting an increase in the trade in services surplus (from 5.2% of GDP in 2019 to 6.2% in 2020).

  • The primary income deficit increased from £13.1 billion or 0.6% of GDP in 2019 to £32.0 billion or 1.5% of GDP in 2020, as UK earnings on investment abroad fell by more than foreign earnings on investment in the UK.

  • The financial account recorded a net inflow in 2020 as UK liabilities to the rest of the world increased by £510.3 billion while UK residents increased their foreign assets by £433.2 billion over the same period.

  • The net international investment position (IIP) narrowed to £510.9 billion in 2020 as foreign stock markets increased in value while UK stocks declined.

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2. Current account overview

The current account records international trade, cross-border income that is associated with the international ownership of financial assets, and current transfers (for example, foreign aid or remittances). It captures the flow of transactions between the UK and the rest of the world. Trade and investment income flows typically tend to explain movements in the UK's current account balance:

  • trade balance - a measure of net international trade

  • primary income balance - a measure of the balance between resident and non-resident income

  • secondary income balance - a measure of transfers between residents and non-residents

The UK's current account deficit narrowed slightly from £60.2 billion or 2.7% of gross domestic product (GDP) in 2019 to £55.9 billion or 2.6% of GDP in 2020. The coronavirus (COVID-19) pandemic has had wide-ranging impacts on the UK's international transactions with the rest of the world, including on gross and net transactions. This reflects the effects of public health restrictions that have been in place around the world throughout 2020.

The trade balance moved from a deficit of 0.9% of GDP in 2019 to a surplus of 0.2% of GDP in 2020, which was partially offset by the increase in the primary income deficit moving from 0.6% of GDP to 1.5%. The secondary income deficit increased from 1.2% of GDP to 1.3% of GDP.

The UK recorded the second largest current account deficit, 2.6% of GDP, of the economies in the G7 in 2020. The United States recorded the largest deficit, 2.9% of GDP, in 2020, followed by France (1.9%) and Canada (1.8%). There was a marked widening in the current account deficit in France from 0.3% in in 2019 to 1.9% in 2020. While Germany remains in a current account surplus, 2020 saw the lowest surplus, 6.9% of GDP, since 2013 (6.6%).

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3. Trade

The coronavirus (COVID-19) pandemic has had significant impacts on gross trade flows in 2020, reflecting how the effects of public health restrictions have impacted upon domestic and foreign demand. There have also been impacts on global supply chains, which have likely had an adverse impact on trade flows. The UK trade balance moved from a deficit of 0.9% of gross domestic product (GDP) in 2019 to a surplus of 0.2% of GDP in 2020, reflecting the fact that there was a larger decline in imports (17.1%) than in exports (14.1%). This is the first time that trade has been in a surplus position since 1997, when it was £3.0 billion

The decline in gross UK trade because of the coronavirus pandemic has been significantly larger than the decline because of the global financial crisis of 2008 to 2009 (Figure 3). It is also the case that there has been a relatively larger impact on services trade in the pandemic as imports declined by 24.1% and exports by 10.7%, which is likely to reflect the global lockdowns and restrictions on international travel that were in place throughout much of 2020. This is particularly the case for those services which are most dependent upon personnel who travel abroad to provide a service and consumers who travel to another country to purchase a service.

Trade in goods

The trade in goods deficit narrowed from £138.2 billion (6.1% of GDP) to £128.7 billion (6.0% of GDP) in 2020, although this does not reflect how the pandemic led to large contractions in the exports and imports of goods trade. Some of the main contributors to the slight narrowing in the trade in goods deficit (Figure 4) were:

  • semi-manufactured goods deficit narrowed from £28.3 billion (1.3% of GDP) in 2019 to £21.5 billion (1.0% of GDP) in 2020
  • oil deficit of £2.5 billion (0.1% of GDP) in 2019 switched to a surplus of £2.0 billion (0.1% of GDP) in 2020

Imports and exports of finished manufactured goods fell by £40.1 billion and £43.3 billion respectively in 2020. With the national lockdowns imposed by the UK government through 2020, temporarily closing some manufacturing sites across the country, UK production was impacted, and the amount of goods produced for export by UK manufacturers rapidly declined. In the height of the first lockdown in April 2020 the Society of Motor Manufacturers and traders reported British car production down by 99.7%, the lowest monthly output since the Second World War.

There was a fall in the imports of oil of £18.2 billion (0.8% of GDP) in 2020, while oil exports contracted by £13.8 billion (0.6% of GDP) over the year (Figure 5). This primarily reflected the restrictions placed on mobility, travel and transportation, leading to a sharp fall in the demand for oil.

Explore the 2020 trade in goods data using our interactive tools

Our data break down UK trade in goods with 234 countries by 125 commodities.

Use our map to get a better understanding of what goods the UK traded with a particular country. Select a country by hovering over it or using the drop-down menu.

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  1. For more information about our methods and how we compile these statistics, please see Trade in goods, country-by-commodity experimental data: 2011 to 2016. Users should note that the data published alongside this release are no longer experimental.

  2. These data are our best estimate of these bilateral UK trade flows. Users should note that alternative estimates are available, in some cases, via the statistical agencies for bilateral countries or through central databases such as UN Comtrade.

  3. This interactive map denotes country boundaries in accordance with international statistical classifications set out within Appendix 4 of the Balance of Payments (BoP) Vademecum (PDF, 1.1MB) and does not represent the UK policy on disputed territories.

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Trade in services

The trade in services surplus increased from £117.5 billion (5.2% of GDP) to £133.0 billion (6.2% of GDP) in 2020, which includes contractions in gross trade flows particularly in travel and transport. Some of the main contributors to the increased surplus (Figure 6) were:

  • travel services deficit decreasing from £14.0 billion (0.6% of GDP) in 2019 to £1.7 billion (0.1% of GDP) in 2020
  • transport services surplus increasing from £0.7 billion (0.0% of GDP) in 2019 to £6.2 billion (0.3% of GDP) in 2020
  • telecommunication, computer and information services surplus increasing from £13.8 billion (0.6% of GDP) in 2019 to £15.9 billion (0.7% of GDP) in 2020
  • insurance and pension services surplus increasing from £16.3 billion (0.7% of GDP) in 2019 to £17.9 billion (0.8% of GDP) in 2020

Travel services saw the largest fall in gross trade flows in 2020. The national lockdowns, quarantine regulations and severe travel restrictions that were in place across the globe provide an explanation for the significant fall in international travel. Recent analysis finds that 73% fewer overseas residents visited the UK while 74% fewer UK residents travelled abroad when compared with 2019.

Transportation services also experienced significant falls over the year, particularly in sea and air transport. Restrictions on movement and travel bans imposed through the public health policy response of the UK and its trading partners explains the observed decline, causing planes to be grounded at airports and ships to remain in port around the world.

The larger impact of the pandemic on trade in services compared with trade in goods observed in the UK is consistent with international analysis. The value of exports of services in OECD countries declined in 2020 by 16.7%, twice as much as the decline in the value of goods exports (8.2%).

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4. Investment income

The coronavirus (COVID-19) pandemic has also impacted upon investment income flows. The UK primary income deficit widened from £13.1 billion or 0.6% of GDP in 2019 to £32.0 billion or 1.5% in 2020, as UK earnings on investment abroad fell by more than foreign earnings on investment in the UK.

There was a fall of £82.2 billion on the UK earnings on its foreign investments, particularly on direct investment (£41.4 billion) and other investment abroad (£31.2 billion). This was partially offset by the £63.2 billion decline in foreign earnings on investments in the UK. These were most pronounced on earnings on other investment in the UK (£31.7 billion) and portfolio investment in the UK (£23.9 billion).

Direct investment

The UK experienced a sizeable fall in earnings on direct investment abroad of £41.4 billion from £99.5 billion (4.4% of GDP) in 2019 to £58.2 billion (2.7% of GDP) in 2020. However, there was only a marginal reduction in foreign earnings on direct investment in the UK of £6.2 billion. Interest rates were lowered across many countries in 2020 as part of monetary stimulus packages in response to the economic downturn, which could explain the falls in earnings on direct investment. It may also reflect how businesses aimed to maintain cash buffers by reducing dividend payments to their investors.

Portfolio investment

There was a fall in portfolio investment income flows in 2020, particularly on those investments held by foreign investors in the UK. This decline is largely because of lockdown restrictions imposed as part of the government's pandemic response package adversely impacting corporation profits. Businesses responded to this by retaining a higher level of earnings and cancelling or paying out fewer dividends to investors. It also reflected a weaker performance of investment abroad, which led to a pattern of disinvestment in equities throughout 2020, reducing portfolio investment credits.

Other investment

There were large falls in UK earnings on other investment abroad and earnings on other investment in the UK in 2020, partly because of the high liquidity of capital in the transactions included within other investment income flows. Central banks around the world reducing interest rates as a part of their monetary stimulus packages to support their economies in response to the pandemic can help to explain the observed contraction in other investment income in 2020. This is despite the high levels of investment in bank deposits and loans seen over the same period.

Rate of return

The rate of return that investors receive on their investment influences investment flows. Usually, investors will be attracted to countries where the rate of return is high, but that is not the only factor that plays into investors' decision-making. Other factors such as how safe an investment is seen to be also influences the decision. In 2020 UK investors saw a fall in the rate of return on their investments abroad from 2.4% in 2019 to 1.5%. Investment from non-residents in the UK saw a similar decline with returns falling to 1.7% in 2020 from 2.4% in the previous year.

Figures 10 and 11 show the rate of return for UK investments abroad and foreign investments in the UK, broken down by continent. UK investors recorded lower rates of return on their foreign investments in 2020. The largest decreases were seen in Africa, and Australasia and Oceania, which have historically been volatile because of their developing economies and proportion of investments in cyclical industries such as mining and quarrying. More developed economies continue to provide lower but more stable returns, but these have decreased in 2020.

Foreign investors recorded sharp decreases in the rate of return on their UK investments in 2020, because of the impact of the coronavirus pandemic.

With the UK leaving the EU and the global pandemic of 2020 it is interesting to look at how investment in countries has changed.

Use the interactive map to see how investment stocks have changed with different countries. Simply hover over the country.

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5. Financial account

A current account deficit places the UK as a net borrower with the rest of the world, so 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 UK has run a current account deficit in each quarter since Quarter 3 (July to Sept) 1998 or, when considering annual totals, 1983.

In the years prior to the global financial crisis (2008 to 2009), the UK funded its current account deficit by incurring more liabilities to non-residents rather than selling existing foreign assets. Figure 12 shows that, since the global financial crisis, total net inward and outward flows are much reduced, and that the UK has in some years been reducing its foreign assets.

Financial inflows (£510.3 billion) and outflows (£433.2 billion) increased in 2020, in sharp contrast with the global financial crisis (2008 to 2009) when financial flows fell to their lowest level on record. This was most marked in other investments, as assets increased by £389.2 billion and liabilities increased by £425.6 billion, most notably including cash deposits and loans. As uncertainty around the emerging coronavirus (COVID-19) pandemic set in, there was a "dash for cash" in mid-March 2020. There was a shift in the risk appetite of investors in which there was an increase in demand for liquid assets, moving towards foreign currency loans and foreign currency deposits both in the UK and abroad. The volatility in the financial flows began to subside after the first half of 2020 and return to more typical levels.

In 2020 the UK increased its liabilities as non-residents deposited £390.9 billion in UK banks, which comprised mostly of foreign currency (£313.3 billion). In addition to this, non-residents returned to investing in the UK stock market to the value of £46.5 billion and increased their direct investment by £24.3 billion.

Meanwhile, UK residents increased their foreign assets by increasing their deposits at foreign banks by £225.8 billion and extending short-term loans to non-residents of £166.9 billion. In addition to the increase in the deposits and loans, UK residents increased their investment in foreign debt securities by £96.3 billion in 2020 as they moved away from foreign shares to the value of £39.2 billion.

Partially offsetting these investments, UK direct investors sold equity capital for the third year running (£13.6 billion). They also withdrew equity capital to the value of £17.8 billion from previous years' profits.

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6. International investment position

The international investment position (IIP) measures the stock of assets and liabilities at the end of period, and is the sum of the opening balance, financial flows and other changes (including price changes, currency changes and so on).

All else remaining the same, the widening in the current account deficit means the UK is more reliant on the rest of the world. This means either incurring net financial liabilities or selling existing assets to finance its borrowing from the rest of the world and therefore the net liability would be expected to widen. However, there can also be revaluation effects and other changes in volume that do not reflect financial flows. 

The net IIP liability position narrowed in 2020 to £510.9 billion from £574.2 billion in 2019 (equivalent to 23.7% and 25.5% of GDP respectively).

From this point forward, when we refer to investments, we use the three main types of investments (direct, portfolio and other) excluding financial derivatives and employee stock options and reserve assets. This is because it is possible to estimate the impact of both currency and price changes on the three main types of investments.

In most years the financial flows are one of the main factors driving the change in the UK’s assets and liabilities. The variations in stock not only reflects the accumulation of new assets and liabilities but also the disposal or revaluation of existing ones and changes in the sterling exchange rate. Changes in exchange rates affect the sterling value of UK assets abroad as they are mainly denominated in foreign currencies. Another factor that could impact upon the revaluation of these assets and liabilities are equity price movements, which can impact on the value not the underlying volume.

By the end of 2020 the value of UK assets, excluding derivatives and reserve assets, increased by £662.2 billion while UK liabilities, excluding derivatives, increased by £624.0 billion. Despite UK investors decreasing portfolio investment by selling foreign shares, the price change of their holdings more than offset the value of the sold shares. In addition, the UK stock market did not perform as well as foreign stock markets; this resulted in non-residents seeing a fall in the value despite increased investment.

By the end of 2020, the value of UK liabilities to foreign investors increased by £624.0 billion as they invested £510.3 billion in the UK. UK liabilities in direct investment, portfolio investment and particularly other investment increased as foreign investors sought liquidity. While UK foreign assets experienced a positive currency revaluation of £224.6 billion, UK liabilities experienced just a £39.0 billion positive revaluation, as much of UK liabilities are already denominated in British pounds.

To obtain the exchange rate impact, we have calculated currency changes by calculating sterling exchange rate movements against a basket of currencies. Similarly, price movements are modelled using a combination of stocks and bond indices including end-quarter share prices for the Dow Jones industrial, MSCI Europe ex UK, FTSE All share and Nikkei 225 exchanges (for more information, see Analysis of the UK's international investment position: 2016).

As financial markets reacted to the expected effect on economic activity in the early months of 2020, there have been very large and sudden changes in financial asset prices. The FTSE All-Share index fell over 10% on 12 March 2020, the largest one-day fall since 1987, as an abrupt and extreme "dash for cash" occurred, in which investors sold off safe assets, such as government bonds, and moved towards short term highly-liquid assets, such as cash. This sudden demand was eased by Central Banks through monetary measures, which supported markets and improved financial conditions.

As shown in Figure 16, some stock market positions have recovered across 2020, while UK equity prices remain below previous levels:

  • 12.5% fall rise in the UK Financial Times Stock Exchange (FTSE) All Share
  • 0.1% fall in the European Economic and Monetary Union (MSCI Europe ex UK)
  • 7.2% rise in the US Dow Jones industrial
  • 16.0% rise in Japan's Nikkei 225
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7. Balance of payments data

Balance of payments, The Pink Book
Dataset | Released 29 October 2021
Annual summary of balance of payments accounts including the current account, capital transfers, transactions, and levels of UK external assets and liabilities.

Balance of payments, The Pink Book time series
Dataset | Released 29 October 2021
Annual summary of balance of payments accounts including the current account, capital transfers, transactions and levels of UK external assets and liabilities.

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8. Glossary

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.

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.

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9. Measuring the data

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 (Office for National Statistics (ONS))

  • International Passenger Survey (ONS) - this was suspended from 16 March 2020

  • 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. The International Trade in Services Survey (ITIS), conducted by the Office for National Statistics (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 Bank of England (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.

Impact of coronavirus on data quality

Since the start of the coronavirus (COVID-19) pandemic and various lockdown restrictions, we have faced numerous challenges in producing the UK balance of payments estimates, including lower than usual response to surveys that feed into the estimates.

Given the uncertainties in estimating the impact of the pandemic on the accounts, users should be aware of potentially larger revisions than usual. UK balance of payments data and international investment position (IIP) estimates since Quarter 1 (Jan to Mar) 2020 are therefore subject to more uncertainty than usual because of these data collection challenges. More information on the challenges faced is available in Coronavirus and the effects on the UK balance of payments.

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10. Strengths and limitations

Quality and methodology

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

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Jamie Pritchard
Ffôn: +44 1633 456106