Trade – A2 Economics
Aims and Objectives
Aim: • Understand the UK current accountObjectives: • Define UK current account • Analyse the UK’s import and export
destinations • Evaluate the importance of the UK
current account
UK Current Account
• Measures the flow of income into and out of the economy. Four main parts:
1) Balance of trade in goods2) Balance of trade in services3) Income Balance – income earned on assets
overseas minus income earned from foreign owned assets in UK.
4) Net Transfers – foreign aid, transfer to EU budget
UK Current Account 2008£m
Export of goods 251,102
Import of goods 343,979
Export of services 170,399
Import of services 115,920
Balance of trade in goods and services -38,398
Income Balance 26,940
Net Transfers -13,610
Top 10 UK Export Destinations 2008
USA; 14.10%
Germany; 11.10%
Netherlands; 7.90%Ireland; 7.60%
France; 7.20%
Belgium/Luxembourg,
5.40%
Spain; 4.10%
Italy; 3.70%Sweden; 2.10% China; 2.00%
Top 10 UK Import Sources 2008
Germany; 12.90%
USA; 7.50%
Netherlands; 7.50%
China; 6.70%France; 6.70%
Norway; 6.30%
Belgium/ Lux-embourg; 5.00%
Italy; 4.10%
Ireland; 3.60%Spain; 3.10%
Top 10 UK Exports by Commodity 2008 (£m)
Oil
Road Vechiles
Pharmaceuticals
Power Generating Equipment
Misc. Manufactures
Industrial Machinery
Electrical Machinery
Transport Equipment
Organic Chemicals
Specialised Machinery
£0.00 £5,000.00 £10,000.00 £15,000.00 £20,000.00 £25,000.00 £30,000.00 £35,000.00
Top 10 UK Imports by Commodity 2008 (£m)
Oil
Road Vechiles
Misc. Manufactures
Telecomms Equipment
Office Machines
Electrical Machinery
Clothing
General Industry Machinery
Power Generating Equipment
Pharmaceuticals
£0.00 £5,000.00 £10,000.00 £15,000.00 £20,000.00 £25,000.00 £30,000.00 £35,000.00 £40,000.00
Trade in Goods and Services 2010
Current Account Balance 2010
Current Account Analysis – General Observations
• Fluctuations tend to be counter-cyclical, they follow opposite course of business cycle.
Because….• During a recovery demand for M will increase due
as domestic capacity is constrained, whilst domestic firms concentrate on booming home markets.
• Strong GDP growth between 1997-2007 accounted for deficit as UK consumers incomes grew, imported more.
• Opposite true in downturn.
1996-1998
• CAB improved
• Due to rapid growth of overseas markets such as the US which led to a surge in investment income in 1998 and exports of services.
1999-2003
• Investment income declined following Asian crisis and the rise in the value of the £.
• Between 2001-2003 global economic growth slowed and the value of £ remained strong.
• Current account remained in deficit, however narrowed due to income surplus.
2004-2006
• Balance worsened
• The increase in the value of £ against the $ was the main reason the deficit was so high
2007-2008
• Deficit narrowed by £6.1bn in 2007 and £12.6bn in 2008.
• Trade in services and income outweighed deficit in trade of goods.
Evaluation: Does the current account deficit matter?
• Read the Article.
• What does the current account deficit mean for the UK economy? Does it matter?
Plenary
• Discuss whether you feel trade with developing countries is necessary for the UK economy to grow.