Prospects for the UK Balance of Payments Book

A sound balance of payments is required for national solvency. Countries cannot continuously run large current account deficits because of the resulting growth of foreign debt; sooner or later some form of adjustment will be required. In "Prospects for the UK Balance of Payments", University of Cambridge economists Ken Coutts and Robert Rowthorn present a previously unseen projection of what will happen to the UK current account balance over the next decade. The picture revealed is bleak; they fear that the UK's current account deficit could steadily deteriorate from under 2 per cent of GDP to almost 5 per cent by 2020. Coutts and Rowthorn argue that the UK economy has become dangerously unbalanced as we have put too much faith in finance at the expense of manufacturing and other activities and, they assert, if unchecked, it will lead to a painful economic adjustment involving lost output and higher unemployment. A relentless deterioration in the balance of payments is unsustainable and, Coutts and Rowthorn assert, the costs of being over-concerned about the UK's balance of payments may well be less than the costs of being under-concerned. They recommend tackling the deficit with policies designed to boost UK trade performance: in particular assigning a central role to manufacturing.Read More