What’s new? This quarter In accordance with the National Accounts revisions policy, the current revision period is open from Quarter 1 (Jan to Mar) 1997. The Quarter 2 (April to June ) 2015 Balance of Payments dataset contains revised Trade in Services estimates compared with those published in the UK Trade bulletin on 9 September 2015. The minor revisions are due to late data returns and the balancing process applied during the compilation of the gross domestic product (GDP) estimates. The trade in goods estimates are unchanged. Revisions in this publication potentially start in Quarter 1 (Jan to Mar) 1997 due to the reasons outlined in an article that accompanies this release (257.9 Kb Pdf). We intend to implement these changes to historic data covering 1987 to 1996 for the Current Account, Financial Account and International Investment Position when the annual Pink Book is published at the end of October 2015. Future revision period The next Balance of Payments release for Quarter 3 (July to September) 2015 will potentially contain revisions from Quarter 1 (Jan to Mar) 2014. Future format of the United Kingdom Balance of Payments – The Pink Book User consultation was sought on the content of the Pink Book chapter text and consensus was to maintain some form of value added descriptive commentary. Our recommendations are as follows: chapter 1 (summary) – the commentary will cross cut the various chapters, focusing on interesting topics and main messages chapters 2 to 10 – the focus will be descriptive commentary based on the most recent time periods

Code of Practice for Official Statistics National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference. © Crown Copyright 2015.

Understanding the data 1. Short guide to Balance of Payments A brief introduction to the United Kingdom balance of payments (92.1 Kb Pdf) provides an overview of the concepts and coverage of the UK balance of payments using the Balance of Payments Manual sixth edition. 2. Interpreting the data Foreign Direct Investment (FDI) acquisitions and disposals impact on numerous parts of the Financial Account and International Investment Position (IIP). A corporate deal between a UK company and a non-UK company would feature in the equity capital component of the Financial Account and IIP. Other categories of the accounts would also be impacted depending on how any such deal was financed. In some cases equity securities would form the payment and impact on Portfolio Investment. In other cases cash would be used and impact on Other Investment, while some deals would use a combination of equity and cash. It should be noted that as elements of a corporate deal filter through the accounts the impacts would be smaller and potentially dwarfed by other transactions. Following a review conducted by the Bank of England, we now presents estimates of income from Foreign Direct Investment (FDI) for all sectors of the economy on a current operating performance basis from 1999. Prior to this, estimates for monetary financial institutions will be on an all inclusive basis which means that holding gains and losses are still included. Import figures for Trade in Goods include adjustments to allow for the impact of trade associated with VAT MTIC fraud. The adjustments were introduced for the first time in the UK Trade May 2003 First Release published on 9 July 2003. The adjustments are added to the EU import estimates derived from Intrastat returns. An article explaining MTIC fraud and the impact on the trade figures (131 Kb Pdf) was published on 9 July 2003. A report on further research into MTIC fraud (137.3 Kb Pdf) was published on 17 February 2005, which summarises the work carried out to review the estimates of the impact on the trade figures. Changes to the pattern of trading associated with MTIC fraud can make it difficult to analyse trade by commodity group and by country, as changes in the impact of activity associated with this fraud affect both imports and exports. Originally, most carousel chains only involved EU member states. From 2004 in particular, some carousel chains included non-EU countries, for example, Dubai and Switzerland. However, the MTIC trade adjustments are added to the EU import estimates derived from Intrastat returns, as it is this part of the chain that is not generally recorded. In particular, adjustments affect trade in capital goods and intermediate goods - these categories include mobile phones and computer components, which are still the most widely affected goods. Figures for total exports and imports less adjustments for trade associated with VAT MTIC fraud are given in the monthly UK Trade Statistical Bulletin. From Quarter 1 (Jan to Mar) 2010, we have included financial derivatives business of UK securities dealers in both the UK’s financial account (flows) and the international investment position (stocks). The inclusion of this data improves the sector coverage of financial derivatives which previously included only data on financial derivatives business of UK banks. An article detailing the improvements to the coverage of derivatives within the United Kingdom Economic Accounts (51.5 Kb Pdf) was published on 25 October 2011. Figures for the most recent periods are provisional and subject to revision in light of: (a) late and corrected responses to surveys; (b) revisions to seasonal adjustment factors which are re-estimated annually; and (c) annual benchmarking of surveys. In order to comply with Regulation (EC) No 184/2005, we supply Eurostat and the European Central Bank with current account data for trade in services and investment income unadjusted for FISIM, for example, FISIM will not be included in trade in services but will remain in investment income. Additionally, a detailed geographical and product breakdown of trade in services is supplied to Eurostat to comply with the same regulation. 3. Definition and explanation A glossary of terms used in the UK balance of payments is available on our website and includes new terms used within BPM6. 4. Special events An article outlining our policy on special events can be found on our website. 5. Use of the data Balance of payments estimates are used by the Bank of England and the Treasury to inform decisions on monetary and fiscal policy. The Department for Business, Innovation and Skills also uses balance of payments estimates to identify international trade partners. International users include the Statistical Office for the European Union (Eurostat) and the International Monetary Fund (IMF). Eurostat uses UK figures to compile aggregate EU accounts and the IMF collate data as a means of ensuring financial stability and sustainability. Government departments and others use balance of payments estimates for the following: in providing ministerial briefing on the headline Balance of Payments and Trade statistics pre-release feeding data into their own regular analyses of the macro economy, and also into more ad-hoc and in-depth analyses. For example, importance of trade with particular countries or groups of countries, importance of trade in different commodities, and or services, identifying comparative advantage, changes in import and export prices, economic contribution from trade and primary income, and looking at inward and outward investment. These analyses and briefings are aimed to inform ministers and decision makers of the current and historical situation, and provide evidence for the policy debate balance of payments data are also of interest to a wider range of user groups, including the media, researchers and other regional, national and international policymakers. Some users focus primarily on the developments in the current account and their financing, including the sustainability of the current account imbalances in the longer term and the need for policy adjustments. Others focus on an analytic presentation, classifying its standard components of balance of payments and their relationship to other components (for example trade and direct investment, and foreign direct investment and productivity). The balance of payments allows a sector breakdown of the financial account and their relationship to domestic sources of finance Further details on use of the data can be found in the results of the balance of payments user engagement survey (81.8 Kb Pdf).

Methods More detailed methodological notes for the UK balance of payments are available on our website. 1. Composition of the data Table C provides an EU/non-EU breakdown of the current account and is presented on an EU28 basis. International investment position statistics are based on recording direct investments at book values, and other assets and liabilities at estimated market values. These estimates are likely in some respects to be deficient in scope and coverage. Quarterly estimates tend to be less reliable because they are largely based on cumulated flows and not reported levels. In theory, every credit entry should be matched by a corresponding debit so that total current, capital and financial account credits should be equal to, and therefore offset by, total debits. In practice there is a discrepancy termed net errors and omissions. The net errors and omissions are shown on Table A. 2. Seasonal adjustment Current and capital accounts are seasonally adjusted. Financial account and international investment position data are not seasonally adjusted. When compiling the geographic breakdown of primary income, secondary income and trade in services, the EU countries are seasonally adjusted. The non-EU seasonally adjusted figure is calculated by subtracting the seasonally adjusted EU total from the seasonally adjusted world total. Both EU and non-EU data are seasonally adjusted for trade in goods; these are aggregated to form the world total. 3. Applying annual benchmark data Foreign Direct Investment (FDI) statistics are collated using a combination of data from the quarterly and annual surveys, both for outward and inward investment. The quarterly survey for outward and inward FDI has 680 and 970 sampled enterprise groups respectively, these increase to 2,100 and 3,500 enterprise groups on the annual survey. Quarterly data are used in the short term to estimate FDI statistics and these data are updated each year through an annual benchmarking process. The larger annual sample size and responses - taken from audited annual accounts, rather than quarterly management accounts - can result in revisions. A range of methods are used to benchmark the various FDI variables and their constituent components. For earnings and flows, the difference is allocated evenly or proportionately according to the data from the quarterly FDI survey, across the quarters of the year being benchmarked. For the investment position, otherwise referred to as the stock of investment, Quarter 4 is constrained to the investment position data from the annual survey. The quarterly path for Quarter 1 to Quarter 3 is determined by data from the quarterly survey, so that the movements are maintained, but the values reflect the pre-determined values in Quarter 4. This method incorporates the most comprehensive information on the annual level, from the Annual FDI Survey, and information on the quarterly movements, from the quarterly FDI Survey. It ensures the best use of information available from both FDI surveys, but can introduce notable changes between Quarter 4 and Quarter 1 if the annual revisions are noticeably different between years. For the Balance of Payments, Quarter 2 (April to June) statistical bulletin, 2012 and 2013 have been benchmarked. These changes are generally small on the annual levels for Assets and Liabilities. However, the impact can be exacerbated when calculating the net position: if revisions to the investment position abroad are positive and investment position in the UK are negative, or vice versa. FDI statistics are currently subject to a National Statistics Quality Review (NSQR): a review of the methodology used and processes adopted to produce both quarterly and annual FDI results, which includes the benchmarking process. It is within the scope of this review to make recommendations on how FDI statistics should be produced in future.

Quality 1. Basic quality information Common pitfalls in interpreting series are the following: expectations of accuracy and reliability in early estimates are often too high revisions are an inevitable consequence of the trade off between timeliness and accuracy early estimates are based on incomplete data Very few statistical revisions arise as a result of “errors” in the popular sense of the word. All estimates, by definition, are subject to statistical “error”, but in this context the word refers to the uncertainty inherent in any process or calculation that uses sampling, estimation or modelling. Most revisions reflect either the adoption of new statistical techniques, or the incorporation of new information which allows the statistical error of previous estimates to be reduced. Only rarely are there avoidable “errors” such as human or system failures, and such mistakes are made quite clear when they do occur. 2. Summary Quality Report The balance of payments Statistical Bulletin Summary Quality Report (117.6 Kb Pdf) is available on our website. 3. National Accounts revisions policy The data in this statistical bulletin are subject to revisions following our National Accounts Revision policy. Estimates for the most recent quarters are provisional and, as usual, are subject to revision in light of updated source information. We provide analysis of past revisions in the Balance of Payments and other statistical bulletins which present time series. 4. Revision triangles Revisions to data provide one indication of the reliability of main indicators. The table shows summary information on the size and direction of the revisions which have been made to the data covering a 5 year period. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. An asterisk (*) shows that the test is significant. Table 2 covers estimates first published in the balance of payments from December 2007 (Quarter 3 (July to September) 2007) to September 2012 (Quarter 2 (April to June) 2012). Table 2: Balance of Payments revisions analysis Current account (seasonally adjusted) £ million Value in latest period Revisions between first publication and estimates three years later Average over the last 5 years Average over the last 5 years without regard to sign (average absolute revisions) Credits (HBON) 173,501 5,781* 6,380* Debits (HBOO) 190,268 3,337* 4,728* Net (HBOP) -16,767 2,445* 3,142* Source: Office for National Statistics Download this table Table 2: Balance of Payments revisions analysis .xls (53.8 kB) Spreadsheets giving revisions analysis (real time databases) of estimates from 1996 to date and the calculations behind the averages in the table are available (754.5 Kb ZIP) on our website. An article analysing balance of payments current account revisions (340.2 Kb Pdf) was published in the May 2007 edition of Economic and Labour Market Review.

Publication policy Details of the policy governing the release of new data are available from our Media Relations Office. Also available is a list of the organisations given pre-publication access to the contents of this bulletin.

Accessing data The complete run of data in the tables of this statistical bulletin is available to view and download in electronic format through ONS Time Series Data. Users can download the complete bulletin in a choice of zipped formats, or view and then download their own sections of individual series. The Time Series Data can be accessed on our website. Further balance of payments data is available online in our quarterly publication United Kingdom Economic Accounts (UKEA).

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