1. Trade – A2 Economics

2. Aims and Objectives Aim: Understand the UK current account Objectives: Define UK current account Analyse the UK’s import and export destinations Evaluate the importance of the UK current account

3. UK Current Account Measures the flow of income into and out of the economy. Four main parts: 1)Balance of trade in goods 2)Balance of trade in services 3)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

4. UK Current Account 2008 £m Export of goods251,102 Import of goods343,979 Export of services170,399 Import of services115,920 Balance of trade in goods and services-38,398 Income Balance26,940 Net Transfers-13,610

5. Top 10 UK Export Destinations 2008

6. Top 10 UK Import Sources 2008

7. Top 10 UK Exports by Commodity 2008 (£m)

8. Top 10 UK Imports by Commodity 2008 (£m)

9. Trade in Goods and Services 2010

10. Current Account Balance 2010

11. 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.

12. 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.

13. 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.

14. 2004-2006 Balance worsened The increase in the value of £ against the $ was the main reason the deficit was so high

15. 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.

16. Evaluation: Does the current account deficit matter? Read the Article. What does the current account deficit mean for the UK economy? Does it matter?

17. Plenary Discuss whether you feel trade with developing countries is necessary for the UK economy to grow.