Paying our way in the world? Visible and invisible dangers of Brexit

The UK economy has long been associated with a weak balance of payments, reflecting an underlying growth model reliant on private household consumption. A deficit in goods trade, chiefly with the EU, has been offset by surpluses in services trade and foreign investment earnings. The Single Market provided wider markets for the UK, but did not fundamentally alter Britain’s structural weaknesses. The Brexit vote took place against the background of Britain running its largest peacetime current account deficit. Financing Britain’s external position represents a key challenge post-Brexit. Post-Brexit models for Britain partially address this. Any emergent model will critically depend on the nature of the Brexit deal with the EU, not least in terms of the impact on financial services and on supply chains. This paper sets out the recent evolution of the UK’s current account position, particularly in relation to the EU. It then highlights particular areas of potential disruption from Brexit and sketches out scenarios of possible evolution of the Britain’s external position in response to this.