5 The impact of oil was twofold. First, as the UK had become an oil-exporting country,
it brought in revenue which improved the balance of payments. Second, however, it
kept the exchange rate higher than it would have been and, as will be shown in the
next section, made the UK’s goods less competitive in world markets, therefore resulting
in a worsening of the balance of payments.
6 The high value of the pound in the late 1990s hit the UK’s export market.
7 The most recent deterioration was due to a fall in the level of non-European exports
especially to Asia and Russia which were experiencing serious economic problems.
Figure 10.1 shows the breakdown of the current account between the balance in goods,
services and interest, profits and dividends. It is clear that in recent years the invisible
balance has compensated for weak trade in goods. According to the Office for National
Statistics, the surpluses in 1997 and 1998 were largely due to the huge losses made by
foreign-owned banks in the City of London because of global financial turmoil. This
had the effect of reducing the profits they sent out of the country compared with previous
years. At the same time, the overseas profits of British companies increased. Again,
this serves to hide in the overall figures a further deterioration in the visible balance
which worsened to –£46,630 million in 2002.