The UK Current Account Deficit and All that

9 Pages Posted: 22 Jun 2006

See all articles by Stephen Nickell

Stephen Nickell

University of Oxford - Nuffield Department of Medicine; Bank of England - Monetary Policy Committee


In this speech, Stephen Nickell, member of the Bank's Monetary Policy Committee, discusses the recent history of the UK current account deficit. Over the past 20 years, the average annual deficit has been around 2% of GDP and shows no signs of diminishing. Indeed, the trade deficits continues to worsen and only substantial offsetting net income flows have contained the current account deficit within bounds. To understand what is going on, we need to look at the net asset position. UK foreign assets are enormous, around four times GDP. UK foreign liabilities are fractionally bigger using official statistics. But if we correct for the fact that direct investment assets and liabilities are measured at book value rather than market value, the UK net asset position remains positive. More importantly, UK assets are biased towards equity type assets and liabilities towards debt type assets. Since the returns on the former are typically greater than the returns on the latter, this explains the positive net income position. The risks to this situation are detailed in the text.

Suggested Citation

Nickell, Stephen, The UK Current Account Deficit and All that. Bank of England Quarterly Bulletin, Summer 2006, Available at SSRN:

Stephen Nickell (Contact Author)

University of Oxford - Nuffield Department of Medicine ( email )

New Road
Oxford, OX1 1NF
United Kingdom

Bank of England - Monetary Policy Committee ( email )

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London EC2R 8AH
United Kingdom

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