This article has been prepared mainly by L.P. Tempest and R.J. Walton of the Bank's Economic Intelligence Department.
The growing output of North Sea oil and gas has now reached the point where it is having quite large structural effects on the UK balance of payments. For more than a century, the traditional composition of the current account has been a large deficit on visible trade, offset to a greater or lesser extent by a surplus on invisibles; capital flows have been more varied, at times positive and at others negative. North Sea oil and gas have had, and will continue to have, very substantial effects on all three categories of external transactions. Within visible trade, the oil deficit, which has been growing for many decades-and in recent years has been very large indeed-is now approaching balance, and, despite imports of equipment for North Sea exploration and drilling, the net benefit of North Sea oil and gas to the visible account has risen dramatically since 1975. On the other hand, the traditional surplus on invisibles is inevitably going to be somewhat diminished by the costs of servicing external borrowings for North Sea development and by the remittance of profits to foreign companies which have invested in the North Sea. There are marked effects on the capital account too: over the past five years, the financing of the North Sea programme has resulted in very large inflows of capital; much of this will be repaid as production builds up.