The UK deficit in goods reached a record last year at £125bn. Therefore, despite a services surplus of £90bn, the overall trade deficit was £35bn. This has been partly explained by the slow-down in China, since they are now buying fewer of our exports but more significantly, these record deficit figures reflect the competitiveness of the UK economy. Possibly, if one feels optimistic, one could argue that the recent fall in the value of sterling will make us more competitive and our exports will increase. However evidence about the price elasticity of demand for exports is not promising. Our invisible surplus has declined in recent years, largely because of the falling contribution from net overseas income (interest, profit and dividends which have fallen as interest rates have dropped and earnings from dividends and profits have been hit by the recession).
We have had a current account deficit for over thirty years so does it matter? If a country has a deficit, it must either use its reserves, sell assets or borrow to pay for the deficit. Fortunately foreign banks and individuals are happy to purchase UK assets, buying shares and government securities, and investing directly in the UK. However what might happen if the UK economic position deteriorates, the currency weakens (possibly because of fears of a possible exit from the EU) and banks start to sell sterling?