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in trade balance in 1994, over U.S. $4.5 billion per quarter throughout the whole year, due to the peso depreciation. One year later, Mexico started to improve the trade balance, about $7 billion surplus in 1995.

The trade balance may deteriorate after depreciation in short term, however it will tend to improve over time. J curve effect shows that depreciation could worsen current account in short period, inelastic may cause negative swings. Positive swing or negative swing depends on price elasticity.

Another important factor impact on current account balance swings is the concept of economic growth and consumer spending (Michael R. Pakko, 2000); consumers could help economic grow, because consumers will have higher spending on imports, also higher import prices. If consumers choose cheaper local substitutes instead foreign imports, it takes time for local producers to replace import products. UK GDP was fast growing during late 1980s, which increased in domestic residents' consumption and inflation rate; these factors caused the current account deficit. In 1992, the recession of economic improved the current account to surplus. Since financial crisis overwhelmed whole world in 2008, the recession was temporarily rise the deficit in the UK due to domestic residents reduced spending and have huge impact on current account balances.

UK current account deficits
The current account deficit represents a country has been spending and earnings. Analysis the trends are important for economists to understand the domestic economic behaviour, they can evaluate the causes of deficits and find possible solutions.

The UK have been suffering current account deficit since 1984. During the period 1980 to 1983, the current account was surplus. In 1989, deficit reached to ￡24.2 billion equivalent to 4.6 per cent of Gross Domestic Product. The current account deficit decrease to ￡0.8 billion in year 1997. 2006 was the most difficult time for the UK, deficits sharply rise to ￡39.1 billion, and it was the highest record. The current account deficit showed the improvement in 2008, which reduced to ￡14.4 billion. 2 years later, the deficit was twice higher than 2008, due to financial crisis. However, the current account deficit declined in year 2011 and equal to 1.9 per cent of Gross Domestic Product.

UK current account balance

Source: pinkbook, 2012. ￡billion
Current account balance as a percentage of GDP

The graph presents the current account as a percentage of GDP, from year 1991 to 2011. In 1991, the deficit was equlevant to 1.7 per cent of GDP, the current account deficit declined to 0.2 percent in year 1998, then dramaticlly fell to 2.7 percent in the following year. After 2000, the rate was fluctuate and sharply recovered in year 2008. It was equal to 1.9 percent in 2011.

Reasons for a current account deficit
Domestic consumers have high demanding on experditure, which will increase in imports and break the balance of current account. Exchange rates may overvalued and the price of domestic products become less attractive than imports products, consumers would spend money on cheaper oversea goods instead domestic goods, exporters become uncompetitive.

If an economy focus on consumer spending rather than exports and with low savings rate will have high current account deficit or negative swings overti