Readers Question: Explain what is meant by a balance of payments disequilibrium?
The Balance of Payments is comprised of two main components:
- The Current Account (trade in goods, services + investment incomes)
- The Financial Account (used to be called capital account; this is capital flows such as foreign direct investment)
If the UK imports more goods and services than we export – then we have a deficit on the current account. A significant deficit on the current account is generally referred to as disequilibrium. It will be matched by a surplus on the financial account.
In the post war period, the UK has usually had a current account deficit, apart from a brief surplus in the early 1980s and 2000s. The UK currently has a deficit on the current account.
Deficit in current account as % of GDP