The paper describes the path of the UK's international investment position (IIP) with the rest of the world. The paper shows that both UK assets and liabilities grew considerably during the past decade. Liabilities always outstripped assets during this period, mainly reflecting the persistent current account deficits, which meant that the UK consistently ran a net liability position. Althoughthe size of the net liability position increased over the decade, its growth has been volatile. The paper presents a model which shows that in the long term flows had driven the changes to the UK’s net IIP, while the volatility in the short term was driven by other changes. The model showed that in 2008 exchange rate effects were the main driver of the UK’s improved net liability position; this wasbecause sterling depreciated sharply against all three major currencies. The deterioration in the net liability position in 2009 and 2010 was explained mainly in terms of price effects, as equity markets began to recover; but also exchange rate effects as sterling began to rally, particularly against the euro; and flows as investors turned to UK gilts in preference to euro denominated government debt
