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Brexit could see an improving UK current account – Deutsche Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 15, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Research Team at Deutsche Bank, suggests that a British exit from the EU could result in higher import and export tariffs and non-tariff barriers to trade which would impact the UK’s current account.

    Key Quotes

    “The UK currently runs a sizeable current account deficit with the EU, at over 6.5% GDP. This is mainly due to wide deficits in the goods and primary income balances (at nearly -5% and -2% of GDP respectively), while the UK runs a modest surplus in services (1% GDP). Assuming tariffs and non-tariff barriers are applied symmetrically by the EU and UK, an EU exit might therefore be expected to improve the trade in goods deficit and worsen the trade in services surplus, at least in the short term. As the goods deficit is significantly larger, the overall effect should be to narrow the UK’s trade deficit due to import compression.

    An offset may be that non-tariff barriers on the UK’s services exports are higher than any tariffs on goods imports. Another is that if a UK exit is accompanied by a much weaker currency, this may worsen the trade balance in the short term due to the J-curve effect. Most importantly, it is unclear to what extent if at all tariff and non-tariff barriers would be imposed in the result of Brexit. This will depend on the outcome of negotiations between the UK and its former EU partners.”
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