The UK's international investment position

Abstract

This paper describes the path of the UK's net asset position with the rest of the world. Notwithstanding that the UK has run a substantial current account deficit for over a quarter of a century, at the beginning of 2009 the net asset position was not far off balance. The paper begins by detailing recent developments in both the UK's overseas balance sheet, known as the international investment position (IIP), and the current account deficit. It examines the link between the IIP and the cumulative current account deficit over the past forty years and explains that the divergence between the two is due to other changes. The paper then introduces a model which enables a decomposition of these other changes into currency, price and other volume effects. The results are reported in terms of annual and quarterly changes before conclusions are drawn.