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Britain is £490bn Poorer than Anyone Thought

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If you are looking for good news about the British economy amidst the uncertainty surrounding Brexit, keep looking.

New reports show that the UK is almost half a trillion pounds poorer than it was originally believed—a staggering number that could have dramatic impacts on Brexit negotiations and the economy as a whole.

Huge Economic Drop


The news comes from a new report released by the Office of National Statistics and shows that the UK no longer has a reserve of net foreign assets that is has relied on and thought it had for years. The stock of wealth has changed from a positive £469 billion to a net deficit of £22 billion. The decline counts for a quarter of the value of the total UK market and GDP and equals around £490 billion.

The revised assessment comes for two reasons: the UK overestimated its international assets, and the country owes much more to foreign investors that previously thought.

“The reason behind this is that foreign direct investment in companies has fallen and our reserve of foreign assets is much smaller than we thought as well,” said Moola’s Gemma Godfrey.

“The reason why this has been offset is two things. First of all, foreign investment has been slightly supported by existing commitments, so it hasn’t really fallen down until recently. And secondly, people have been buying a lot of sterling because they thought the pound was going to rise. But again, that’s quite fickle.”

Investment in the UK by individuals and companies located overseas fell from a surplus of £120 billion in the first half of 2016 to a deficit of £25 billion for the first half of 2017. According to economic experts, the outflows from the UK began over the summer and haven’t stopped, with many of the big buyers taking their business elsewhere.

The British economy has faced uncertainty recently, especially after the Brexit referendum in 2016 that left many people wondering what would happen to the country as it tried to leave the EU.

Future Impact with Brexit Coming


The announcement comes at a particularly bad time as the economy is already floundering with the uncertainty of Brexit on the horizon. The new figures take away the safety net of having a reserve of money to fall back on and removes almost all of the protection against Brexit. Going into Brexit negotiations with substantially less money also puts the UK in a weaker bargaining position, which could greatly affect talks about trade deals and other economic issues.

The ONS report comes just six weeks before chancellor Philip Hammond’s first autumn budget, and things aren’t looking good. Officials at the Treasury are reportedly preparing for “gloomy” forecasts. The budget is an opportunity for Hammond to show that the UK could still thrive if it left the EU without a trade deal, but that optimism seems unlikely now.

The huge deficits are yet another blow to the UK economy, and time will tell if the country can recover its economic standing.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.