It has emerged that Britain is currently £490 billion poorer than previously believed, as well as having perilously few foreign assets.
The Office for National Statistics (ONS) had overestimated both the amount of foreign investment in the UK and the value of financial assets that UK investors owned abroad. The realisation that this was the case prompted the re-evaluation of Britain’s wealth, and the discovery of the £490 billion hole in the country’s finances.
The revised ONS figures have left Global banks and international bond strategists reeling as the realisation hit that the country now lacks a safety margin during the pivotal Brexit negotiations. Compounding the issue is the fact that foreign direct investment (FDI) by companies is falling, having dropped from a £120bn surplus in the first half 2016 to a deficit of £25bn over the same period of this year.
The Bank of New York Mellon attributed the financial deficit to a significant fall in purchases of sterling stocks and bonds over recent weeks by ‘real money’ players, such as pension funds and sovereign wealth funds.
Simon Derrick, strategist at The Bank Of New York Mellon said in the Telegraph: “The outflows from the UK began in mid-August. The big buyers are disappearing.”
“Half a trillion pounds has gone missing. This is equivalent to 25pc of GDP,” said Mark Capleton, UK rates strategist at Bank of America.
Gemma Godfrey from Investment website Moola explained: “We thought they were in £469bn of surplus, but actually we have a £22bn deficit. That equates to a quarter of the value of the UK market in total.”
Gemma Godfrey explained the missing half a trillion pounds.
“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. The Office of National Statistics have redone the figures and they are much lower than we thought. 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. The reason this is important is that it removes our safety net and also puts us in a weaker position when we’re going into Brexit talks.”
The sum that’s gone AWOL is the equivalent to 40 years of EU contributions and could leave the pound plummeting a further 20%.