UK Current Account Deficit Widens as Iran War Drives Import Costs Higher

The UK’s current account deficit widened sharply during the Iran war period, according to ONS balance of payments data, as the surge in global energy prices drove up the cost of the liquefied natural gas, oil products and other energy commodities that the UK imports to supplement domestic North Sea production. The deterioration in the external balance represents one of the clearest channels through which the geopolitical shock translated into a measurable worsening of the UK’s macroeconomic position.

The current account records all economic transactions between the UK and the rest of the world — trade in goods and services, income flows and transfers. The goods trade deficit, which has been a structural feature of the UK economy for decades reflecting the country’s long-run shift towards services, widened further as energy import values rose while export volumes were constrained by the broader slowdown in global economic activity.

The UK’s services surplus — reflecting the strength of financial services, professional services and other export earnings — provided a partial offset to the goods trade deterioration but was insufficient to prevent the overall current account from moving to a wider deficit position than had been projected before the conflict. Investment income flows, another component of the current account, were affected by the volatility in financial asset values during the peak conflict period.

The financing of a wider current account deficit requires sustained capital inflows — foreign investment in UK assets, portfolio flows and other capital movements. Sterling’s resilience during the conflict period, despite the economic headwinds, reflected in part the continued attractiveness of UK assets to international investors and the safe-haven premium that London’s financial infrastructure commands.