9th Week Post on Economics News about the UK

Original Article: http://www.nytimes.com/2012/06/05/business/global/nervous-europeans-snap-up-london-property.html?_r=1&src=me&ref=business

As is reported by the New York Times, foreign investors, particularly European investors, are flooding into the prime real estate industry in London. With a deteriorating economy in the Euro Zone, European investors are seeking safe shelter to preserve the value of their wealth. Among all options, with a relatively stable economy and averagely high value of prime property, expensive London flats are favorite with most investors. The tremendous capital inflow infers a trade deficit in the UK. This can be proved by looking at the national accounting equation, Y = C + I + G + NX. (Y - C - G) refers to national saving, and (Y - C - G) - I is the difference between saving and investment. Capital inflow implies net foreign borrowing. That means saving is less than investment; equivalently, (Y - C - G) - I < 0. Since (Y - C - G) - I = NX, we have NX < 0. Therefore, export is smaller than imports; the UK is having a trade deficit. This can be verified by looking at the international trade data for the UK. The most recently published government information indicates a trade deficit of 2.7 billion pounds in March. The gap between exports and imports can be exacerbated as the increasing demand for British Pounds increases the value of GBP, leading to more expensive British goods and declining exports.