The UK's Trade Deficit - big and getting bigger.

At the University of the West of England in February 2015 I had a chat with some undergraduate economists about the state of the UK's current account deficit.

The current account is the part of the balance of payments which deals with the money value of Imports and Exports of Goods & Services along with transfers of income (the other part is the Financial and Capital Account).

If you add up the money value of all Imports, Exports, transfers of income and a couple of other small things you have a situation where £25 to £30 Billion or around 5-6% of GDP is leaking out of the UK economy.  This is not great news.  The money may be coming back in terms of foreign companies investing in the UK or putting it in UK banks or buying government debt but over the long-term this can be unsustainable.

The question I asked the students was:

Should we look at ways of reducing our reliance on imports?

They considered:

• A 'Buy British' campaign.
• Leaving the EU.
• Increasing protectionism.
• Investing in UK productivity so the UK becomes more efficient.
• Spending more money on capital investment so the UK becomes more efficient.
• Developing more support for exporters.
• Concentrating on further developing exports of UK services.
• A devaluation of the pound.

None of these were straightforward.  They felt that the EU was a major trading partner so leaving the EU could harm the UK.  They were aware that it was difficult to impose tariffs on imports because of international trade rules.  Investment seemed like a good idea but would take time.  Supporting exports or developing the service sector were possibilities.  A devaluation of the pound could just mean that imports became more expensive but we could still be reliant on them - if you look at the value of food and oil we import you can see the problem.

There are no simple answers but the figures certainly show that the UK has a serious problem which those on power appear to be largely ignoring.