Dead Men Left

Friday, July 15, 2005

Good old-fashioned doom-mongering

First reports of a slide in UK services exports reminded of something I'd seen a few months back:

Graham Turner, of GFC Economics, says the figures for net investment income from abroad are artificially swelled by what is known as unremitted income. That is where a UK company has a stake of 10% or more in a foreign company and a flow of income (not just dividend payments) is assumed by government statisticians. There is nothing dodgy about this and it is fully in line with international conventions, but the fact is that the income is not being repatriated and, as a result, Britain's current account is actually in worse shape than it looks.

The point here being that the UK current account deficit is reduced by a combination of services exports and net investment income from abroad. (Manufacturing trade has shown a deficit with the rest of the world for decades now.) If the current account is artificially boosted, and services exports start sliding on top of that, the current position of the pound - and potentially the whole UK economy - is even more unstable.