The paper "European Business and Balance of Payments" is a wonderful example of an assignment on business. A record of transactions between two countries implying a difference in the total value between payments into and out of a country over a period of time is shown in the balance of payments (BOP). BOP encompasses all transactions taking place between the residents of a country and the rest of the world. BOP encompasses goods, services, and income, transfers such as gifts and pension as well as financial claims and liabilities.
BOP is, thus, an important tool for formulating national and international economic policy (Economics. Help, 2014). Components of UK’ s Balance of Payment The balance of payments consists of: Current Account comprising of trade in goods, services, investment incomes, and current transfers Capital Account / Financial Account consisting of capital and financial flows, net investment, and portfolio investment Errors and omissions The UK has faced a consistent deficit in the current account, which implies that the amount of the goods and services imported is more than the export volume. Factors that can be held responsible for the current account deficit are noted below: The deficit in goods – Due to de-industrialization, the UK has had a very large deficit of goods.
Besides being a manufacturer of goods, the UK has increasingly become an importer of manufactured commodities such as clothes, computers, and cars. The UK is also an importer of food and oil. The surplus in service partly offsets the deficit in goods but is not sufficient in order to overcome the trade deficit. Financial Flows – Over the years, the UK has increasingly attracted effective financial flows such as, portfolio investments, which in turn finance its current account deficit. Relatively low rate of saving – Individuals residing in the UK have a relatively low rate of saving as compared to that of other countries.
Then again, despite a rise in the saving rate, deterioration in the current account could not be prevented. High consumer spending – A rapid growth in consumer spending leads to an increase in imports, which in turn adversely affects the current account. During a boom in the economy, the saving rate appears to fall, unlike consumer spending, which increases and leads to a current account deficit (Economics.
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