The Structure of the Current Account of the Balance of Payments

The Structure of the Current Account of the Balance of Payments

• The main elements of the balance of payments are: the current account, the capital and financial accounts, and net errors and omissions
• The current account is the most important, and includes things like trade in goods and services, income and transfers.
  • Trade in goods is also known as the visible balance, as the goods are tangible
    • In recent years, the UK has had a deficit in trade goods
  • Trade in services includes things like travel and computer services, and this is known as the invisible balance
    • The UK has had a surplus in this consistently
  • Income is about the investments UK citizens make – what is earned in terms of profit and dividends.
    • The UK usually has a surplus on this, meaning UK investors earn more via investment income abroad than foreigners do in the UK
  • Transfers cover the transfer of money in and out of the UK, e.g. government payments to and from the EU, and foreign workers sending money to their family abroad.
• The capital and financial accounts show the movement of direct investment, e.g. setting up a factory