UK Current Account Deficit Widens in Q2 2023: Trade, Income, and Transfers

During the second quarter of 2023, the UK's balance of payments, which includes trade, primary income, and secondary income, showed some notable changes.

Starting with the current account balance, the UK experienced an expansion in its deficit, excluding precious metals, reaching ﾣ28.5 billion or 4.2% of GDP. This represents an increase of ﾣ7.1 billion from the previous quarter, where the deficit was ﾣ21.4 billion, equivalent to 3.2% of GDP.

Looking specifically at trade, the total trade deficit decreased from ﾣ13.9 billion (2.1% of GDP) in the first quarter of 2023 to ﾣ13.1 billion (1.9% of GDP) in the second quarter. This reduction was driven by a decrease in the trade in goods deficit, which fell by ﾣ4.7 billion to ﾣ51.3 billion or 7.6% of GDP. The decline in the goods deficit was primarily due to a decrease in imports, particularly in other fuels and oil, as global gas prices continued to fall. However, there were increases in imports of finished manufactured goods and food, beverages, and tobacco. On the other hand, goods exports increased by ﾣ1.3 billion to ﾣ95.8 billion, mainly driven by higher exports of finished manufactured goods.

In terms of services, the trade surplus narrowed by ﾣ3.9 billion to ﾣ38.2 billion or 5.7% of GDP. This was mainly due to increased imports in most service types, with notable increases in imports of other business services and transport services.

Moving to the primary income account, a deficit of ﾣ10.3 billion or 1.5% of GDP was recorded in the second quarter of 2023. Both credits and debits increased, but debits increased more significantly due to larger non-residents' investments in the UK compared to UK residents' investments abroad. UK earnings on direct investment abroad decreased, while payments to foreign investors increased.

In the portfolio investment category, both credits and debits increased. Within the other investment category, earnings on both credits and debits continued to rise due to increasing interest rates globally. The higher amount of investment in the UK from overseas compared to the amount invested overseas from the UK contributed to a widening deficit.

Lastly, the secondary income account, which records current transfers between residents and non-residents, showed an increased deficit of 0.7% of GDP (ﾣ5.0 billion) in the second quarter of 2023. This was primarily due to an increase in other payments by general government.

In summary, during this period, the UK experienced an expansion in its current account deficit, driven by changes in trade, primary income, and secondary income. The trade deficit decreased, primarily due to a decline in imports of fuels and oil, while exports of finished manufactured goods increased. The primary income deficit was influenced by larger non-residents' investments in the UK, while the secondary income deficit increased due to higher payments by the general government.