Brexit and our Balance of Payments

The Balance of Payments is a weighing scale that always balances; it has to. It's about payments of money to the UK and from it. Payments going out are import costs and payments coming in are export receipts.  For example, I'm buying a new car, a Mitsubishi which is imported from Japan, so 20 grand will head it's way to the Land of Continue Reading

The Balance of Payments is a weighing scale that always balances; it has to. It's about payments of money to the UK and from it. Payments going out are import costs and payments coming in are export receipts. 

For example, I'm buying a new car, a Mitsubishi which is imported from Japan, so 20 grand will head it's way to the Land of the Rising Sun as an import cost. 

I'm also working in Bangladesh at the moment, my fee being met by an insurance company here, that's an export. Taka will be converted to pounds and money will arrive in my bank account. 

Invariably the UK imports more than it exports, and traditionally we've done well exporting services rather than goods, my work in Dhaka is an export of services. 

It always balances because a lot of foreign money comes trundling in from abroad because we're a safe haven for investments, Gilts shine well here. We also pay fine interest, which is very rare around the world. 

Brexit has and will affect the price of the pound compared to other currencies. Since the referendum, the pound has fallen and has remained low. This means exporting is cheaper and importing more expensive, hopefully encouraging more exports and fewer imports.

My clients in Dhaka need less Taka to buy a pound, so the fee is cheaper for them. Maybe they'll invite me out again this year. 

Conversely, importing goods becomes more expensive as our pound buys less foreign currency. Unfortunately, all that happens is the price rises causing inflation, which is the bigger worry. 

This might put the balance out of sync, so we need more foreign money to flood in, and it may require higher rates of interest to encourage it. Not good. 

Exporting is much better than importing as you need a balance. Hence the UK has a reputation as a trading nation and has had so for hundreds of years. 

This has a positive effect on the Balance of Payments in theory. However, once a deal is struck, or the markets think the UK is stable again, the pound will rise, reversing the situation. Exports get more expensive and import cheaper. That will probably happen. 

I wish we could export our politicians, might get a reasonable price for them.