Economic forum whats new

ONS Economic Forum

Email: [email protected]: @ONS

#ONSeconomyWebsite:

http://www.ons.gov.uk/ons/about-ons/get-involved/events/events/economic-forum/index.html

8 October 20141

What’s new

Peter Patterson, Deputy Chief Economic Adviser

ONS Economic Forum

8 October 2014

2

Improvements

• Improvements to methods• GNI reservations• Continuous improvement

• New international frameworks (ESA 2010, BPM6, MGDD)

• New data (from 2010 onwards)

3

Improvements to methods: Addressing GNI reservations

• ‘GNI reservations’ largely about the level of GNI but there is some impact on growth

• Articles published on 29 May • Review of Non-Profit Institution serving

Households units (NPISH)• Financial Intermediaries Services Indirectly

Measured (FISIM) • Illegal Activities • New Cars • Own-account construction• Exhaustiveness adjustments

4

Improvements to methods: ‘Continuous improvement’

• Gross Fixed Capital Formation

• Inventories

• Industry reviews

5

New International Frameworks

• ESA 2010 based on SNA 2008• SNA 2008 already adopted worldwide• ESA 2010 implemented from

September 2014 across all EU Member states

• Balance of Payments Manual 6 – mainly GDP-neutral

• Greater comparability, consistency and relevance

6

New International Frameworks

• R&D• Weapons• Decommissioning costs• Pensions• Small Tools• BPM6 changes

7

Summary of revisions to GDP

• Substantial increase in level of nominal GDP in all years - on average 4.1% higher than before

• Little change to average annual real GDP growth 1997-2013 – up 0.1pp from 1.9% to 2.0%

• Bigger changes to individual years - range +0.9pp (2009) to -0.9pp (2007)

• Slight downward revision to average annual growth 1997-2007, but upward revision (+0.5pp pa) to 2007-2012 . No change to 2013

• Slightly higher growth 1997-2013 is on average entirely due to ESA 2010 changes ...

• .. but in 2008-2012 a result of a range of non-ESA changes

8

Higher levels of nominal GDP

9

1997 Q1

Q2

Q3

Q4

1998 Q1

Q2

Q3

Q4

1999 Q1

Q2

Q3

Q4

2000 Q1

Q2

Q3

Q4

2001 Q1

Q2

Q3

Q4

2002 Q1

Q2

Q3

Q4

2003 Q1

Q2

Q3

Q4

2004 Q1

Q2

Q3

Q4

2005 Q1

Q2

Q3

Q4

2006 Q1

Q2

Q3

Q4

2007 Q1

Q2

Q3

Q4

2008 Q1

Q2

Q3

Q4

2009 Q1

Q2

Q3

Q4

2010 Q1

Q2

Q3

Q4

2011 Q1

Q2

Q3

Q4

2012 Q1

Q2

Q3

Q4

2013 Q1

Q2

Q3

Q4

2014Q1

Q2

200000

250000

300000

350000

400000

450000

Previously published

Blue Book 2014

£ billion per quarter

Real GDP growth

10

-8

-6

-4

-2

0

2

4

6

8

Previously published

Blue Book 2014

% changes on same quarter a year earlier, chained volume measure

Real GDP – 2008-2009 recession

• Broad narrative of recession is little changed• Timing and duration of recession unchanged

– peak 2008Q1, trough 2009Q2• Peak-to-trough fall in output revised to 6.0%

(previously 7.2%) – remains within broad range of previous estimates of around 6-7%

• Remains the deepest UK recession since ONS records began in 1948

11

Real GDP – recovery since 2009

• Increase in real GDP between 2009Q2 and 2014Q2 revised from 8.0% to 9.3%

• Average annual growth rate up from 1.5% to 1.8%

• Upward revisions due to a range of factors - changes to investment and inventories, new data, and S&U balancing (2012)

• Relatively little impact from ESA 2010 changes (including R&D)

• Recovery remains the weakest on record12

Comparison of UK recessions

13

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 2590

95

100

105

110

115

1973Q2

1979Q2

1990Q2

2008Q1

Real GDP, index numbers, pre-recession peak = 100

Quarters following pre-recession peaks

Productivity (output per hour)

1419 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

75

80

85

90

95

100

105

110

115

Previously published

Blue Book 2014

1997-2007 trend

Index nos, 2008Q1 = 100

Changes to fixed investment (GFCF)

• Capitalisation of R&D• Capitalisation of military weapons systems• Improvements to own-account construction• Inclusion of expenditure on small tools• New data from ABS for 2011 and 2012• Decommissioning costs for nuclear power plants• Supply and use balancing adjustments• Reconversion of survey data from SIC03 to SIC07• Revised data for land improvements• Other annual revisions to data sources

15

Total fixed investment (GFCF)

16

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

50

100

150

200

250

300

BB14BB13

£ billion per year

Revisions to GFCF by component

17

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-10

0

10

20

30

40

50

60

R&D

weapons

OA construc-tion

ABS

small tools

terminal costs

other

total change

£ billion

Contributions to GDP growth

18

-2

0

2

4

6

8

10

Other Net Trade

GFCF HHFCE

GDP

Previously published

-2

0

2

4

6

8

10

Other Net Trade

GFCF HHFCE

GDP

Blue Book 2014

Cumulative contributions of expenditure components to GDP growth since 2009Q2 (percentage points)

Gross operating surplus: PNFCs

19

1997 Q1

Q2

Q3

Q4

1998 Q1

Q2

Q3

Q4

1999 Q1

Q2

Q3

Q4

2000 Q1

Q2

Q3

Q4

2001 Q1

Q2

Q3

Q4

2002 Q1

Q2

Q3

Q4

2003 Q1

Q2

Q3

Q4

2004 Q1

Q2

Q3

Q4

2005 Q1

Q2

Q3

Q4

2006 Q1

Q2

Q3

Q4

2007 Q1

Q2

Q3

Q4

2008 Q1

Q2

Q3

Q4

2009 Q1

Q2

Q3

Q4

2010 Q1

Q2

Q3

Q4

2011 Q1

Q2

Q3

Q4

2012 Q1

Q2

Q3

Q4

2013 Q1

Q2

Q3

Q4

2014 Q1

Q2

40000

45000

50000

55000

60000

65000

70000

75000

80000

85000

Previously published

Blue Book 2014

£ billion per quarter

Gross operating surplus – financial cos

20

1997 Q1

Q2

Q3

Q4

1998 Q1

Q2

Q3

Q4

1999 Q1

Q2

Q3

Q4

2000 Q1

Q2

Q3

Q4

2001 Q1

Q2

Q3

Q4

2002 Q1

Q2

Q3

Q4

2003 Q1

Q2

Q3

Q4

2004 Q1

Q2

Q3

Q4

2005 Q1

Q2

Q3

Q4

2006 Q1

Q2

Q3

Q4

2007 Q1

Q2

Q3

Q4

2008 Q1

Q2

Q3

Q4

2009 Q1

Q2

Q3

Q4

2010 Q1

Q2

Q3

Q4

2011 Q1

Q2

Q3

Q4

2012 Q1

Q2

Q3

Q4

2013 Q1

Q2

Q3

Q4

2014 Q1

Q2

0

5000

10000

15000

20000

25000

Previously published Blue Book 2014

£ billion per quarter

Real households’ disposable income growth

21

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-2

-1

0

1

2

3

4

5

6

7

RHDI annual growth (Blue Book 2014) RHDI annual growth (previously published)

% changes on previous year

Changes to households’ saving ratio

22

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

2

4

6

8

10

12

14

Saving ratio (Blue Book 2014, %) Saving ratio (previously published, %)

Households’ saving as % of total available resources

Sectoral financial balances: BB14 changes

Net lending/borrowing, % of GDPPreviously published Blue Book 2014

23

1997

1999

2001

2003

2005

2007

2009

2011

2013

-15%

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%

Rest of the WorldPrivate non-financial corporationsFinancial corporationsHouseholdsPublic sector

Current Account: key changes

Change Rationale

Measurement of MFI profits on FDI• Current Operating Performance (COP) rather than All-Inclusive (AI) basis.

• holding gains and losses now excluded.

• debate on whether COP or AI better long standing one.

• COP recommended under BPM5, BPM6 mandates.

• evidence many countries already using COP. Better international comparisons possible.

• COP used throughout the UK sector accounts so improved coherence.

• capital gains removed as form of income – correct treatment.

Measurement of FISIM• FISIM business with non-resident financial institutions now excluded.

• different reference rate used for exports.

• FISIM imports reduced in line with levels of overseas loans & deposits to reflect change in sectorisation of UK non-bank deposits with, and loans from, banks in the rest of the world introduced in Blue 2013.

• significant level of financial services between banks relate to intra-bank funding, rather than provision of a service to the real economy.

• implied interest rate charged on foreign loans with UK banks better reflects margins of UK banks.

• improved coherence between FISIM imports and loans & deposits data.

24

Current Account: key changes

Change Rationale

Illegal activities

• measurement extended to include drugs.

• illegal transactions exchanged with consent are included in the ‘production boundary’ so should be captured in the National Accounts.

• all EU countries obliged to introduce for comparability purposes.

Gambling• introduction of estimates for ‘remote’ gambling

• on-line gambling an ever increasing e-service provided to households.

• estimated that 90% of on-line gambling consumed in UK is supplied from overseas.

Allocated non-monetary gold

• estimated for first time.

• all gold other than where monetary authorities have title and is held as reserve assets (store of wealth).

• level of trade can be significant.

• previously lack of available data but BoE developed collection from main UK custodians of gold

25

Current account balance

26

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-5.0%

-4.5%

-4.0%

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

Previously published Blue Book 2014

Current account of balance of payments, % GDP

Revisions to current account balance

27

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Revision to secondary income balance Revision to primary income balance

Revision to trade balance Revision to current account balance

Pink Book revisions to current account of balance of payments (% GDP)

International investment position

28

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17-300

-250

-200

-150

-100

-50

0

50

100

150

Revision Previously published Blue Book 2014

£ billion

LFS re-weighting for 2011 Census

• Employment level (16+) increased• Employment rate (16-64) virtually unchanged

to 2010; from 2010 slightly lower (up to 0.2pp)

• Unemployment level (16+) slightly higher but rate (16+) virtually unchanged

• Inactivity level (16-64) increased• Inactivity rate (16-64) virtually unchanged to

2010; from 2010 slightly higher (up to 0.2pp)

29

LFS re-weighting for 2011 Census

30

Contributions to productivity growth

31

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26-5

-4

-3

-2

-1

0

1

2

ABDE¹ Manufacturing Construction Financial Services

Other Services Whole Economy

Contributions (% points) to cumulative growth in output per hour since 2008Q1

Output growth by sector

32

Mining and quarryingChemical & pharmaceutical

Finance and insuranceTextiles & clothing

Information & communicationProduction

Wood, paper & printingProfessional services

Coke & petroleumAccommodation & foodMachinery & equipment

ManufacturingTotal

ServicesOther services

Transport, storage & communicationRubber & plastic

Arts, entertainment and recreationGovernment servicesComputer & electrical

Real estateMetals

Food, drink & tobaccoWholesale & retail

ConstructionAdmin & support

Transport

-4% -2% 0% 2%

Difference

Q1 1997 - Q1 2008

Q2 2009-Q2 2014

Average quarterly output growth, per cent

Job-to-job moves by reason

33

2003

2003

2004

2004

2005

2005

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Retirement or gave up work Resignations Dismissals and Redundacies Other reasons Move Rate

% of employees, 4 quarter moving average

Job-to-job moves by occupation type

34

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Non-response Moves to lower occupations Moves to higher occupationsMoves within low occupations Moves within medium occupations Moves within high occupationsTotal

% of employees, 4 quarter moving average

CPI inflation by import intensity

35

2007

2008

2009

2010

2011

2012

2013

2014

-2

-1

0

1

2

3

4

5

6

7

Data Unavailable Energy and fuel 75-100%

50-75% 25-50% 0-25%

0% CPI

Contributions to CPI annual % change: percentage points

85 class level components of CPI according to degree of import penetration in household consumption