13 thoughts on “One day the UK trade deficit will come back to bite us

  1. The balance of payments has been in deficit for years, but nobody seems to be bothered by it or even discusses it much. How can a country carry on like this for years with seemingly no effect?
    Is the deficit funded by more borrowing and is there a limit on how much. Can it go on forever?
    The situation is getting worse and nothing is being done to redress the imbalance. No change there then.

    • Hi Foxy

      There are ways of funding it which pretty much go as follows.

      1. We have foreign assets so we could sell/drain them
      2. We have foreign income (less what we pay to them).

      That is the primary account which is separate to today’s numbers. Also there has been a spell of us selling our assets to foreigners and by this I mean houses especially in London. Also I think that foreign money has come here as we are a “safe haven” in these times. The problem though with relying on capital flows is that they can retreat as well as advance!

      Also as I said in the post we may be doing better on the services front, but I doubt even that could cover the years and years of deficits.

  2. Hi Shaun

    You brand the FPC as complacent but is it? After all the £ is pretty high and to hike IRs to choke off imports may also put the £ even higher which will reduce inflation and make it less easy to reduce the debt burden. The fact is that anything which “takes the punch bowl away” is likely to have deleterious consequences and perhaps the CBs prefer to clean up the mess rather than be accused of creating it by actually doing anything which will rein back the Ponzi.

    Although, as you say, we have had many of these BOP crises in the past one cannot help thinking that the economy is much more finely balanced than it was even twenty years ago and that almost anything that reins back the Ponzi risks bringing the whole house down about our ears, which maybe why TPTB are so reluctant to act. Are TPTB just dumb or merely practising what they do best: lie, cheat and obfuscate and kick the can down the road? I’m inclined, on balance, to acquit them of stupidity. In any case we are, supposedly, in the season of goodwill and one shouldn’t be too harsh.

    • Wouldn’t raising (hike is another of my pet hates; it means to walk, not to raise) interest rates cause an inflow of money and wouldn’t that make a BoP easier to deal with?

      • Ceteris paribus (that term!) an increase in the £ would make the BOP worse but, at the trade level I think it may depend on the relative price elasticities of demand for imports/ exports. There is an old rule knwon as the Marshall-Lerner condition which states that a depreciation will improve the BOP and an appreciation worsen it if the sum of the elasticties of demand for imports and exports exceeds 1. Sorry about that.

  3. Britain to EU -> £7.4bn pcm.
    If the UK votes to leave the EU, how many barriers to trade do you think the EU will erect?

    As for Bean counter, he probably has responded, by sticking his fore-fingers in his ears and singing loudly “LA-LA-LA!!”

    The game is up already with the UK economy; finding out that the services sector is performing better than thought won’t help.

    The publicity of it doing poorer might, however, shorten the window of opportunity for TPTB to pillage what’s left, before we crash and burn.

    • Hi therrawbuzzin

      If Europe puts up barriers to trade with the UK then they will annoy a lot of their own citizens and businesses as you say. They would be out of pocket and would be sending that message to their respective governments. This does not feature enough in the debate over our place in Europe.

  4. This is the ‘big one’ and the subject that should keep George Osborne awake at night. I think it is also the reason why interest rates have been kept so low for so long (rather than bailing out banks) as most western economies are in the same boat and are terrified of loosing the slightest competitive advantage that might help the situation. That and the rising consumer debt that would implode with a decent rate rise. Our appetite for gadgets and foreign holidays is boundless and it was interesting to read where people spent their money on Black Friday. I have to wonder just how many more I pads, Apple watches, wide screen TVs etc folk could possibly want! I joined in by buying a new laptop but in my defence the desk top computer I junked was old enough to have a floppy disk drive! It would appear to be the case that the great British consumer will always spend now rather than pay down debt to save for the future. Quite a contrast to Asia where I lived for many years. They were and are great savers (as well as stock market gamblers!). In an ideal world we would increase import tariffs on consumer goods to correct the imbalance but those days are long gone – until we have a catastrophe. As previously mentioned – just how long can this situation go on for?

    • Hi Pavlaki

      Younger readers will probably be wondering what on earth is a floppy disc?! They seemed high-tech back in the day when they were a data storage device that was used for so many things. For example I used one for my option trading program back in the day.

      As to the trade deficit then as you say a lot of it is simply the fact that we are a nation wedded to consumption. One bright side is that we are unlikely to turn fully Japanese for that reason.

  5. how long ?

    so long as it blows up on the next guy’s shift they dont care

    on, and that the Banks are bailed out again , a la Greece……

    MFG will drop to close to 2% like agriculture but no one will notice as we’ll be too busy selling houses to each other ……

    Forbin

    • Hi Forbin

      How long has this been going on? The debate is over 1997/8 where as the revisions come through we dip in and out of deficit//surplus. It is revealing that we get substantial trade revisions years and sometimes decades later.

      Meanwhile another credit crunch low for Brent Crude Oil as it dips below US $40 per barrel.We should be getting some cheaper fuel soon.

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