ONS Economic Forum

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#ONSeconomy

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involved/events/events/economic-forum/index.html

8 October 2014

1

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

200

250

300

350

400

450

1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1

£ billion per quarter

Previously published

Blue Book 2014

Real GDP growth

10

-8

-6

-4

-2

0

2

4

6

8

1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1

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 record

12

Comparison of UK recessions

13

90

95

100

105

110

115

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 25

1973Q2

1979Q2

1990Q2

2008Q1

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

Quarters following pre-recession peaks

Productivity (output per hour)

14

75

80

85

90

95

100

105

110

115

1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1

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

0

50

100

150

200

250

300

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

£ billion per year

BB14

BB13

Revisions to GFCF by component

17

-10

0

10

20

30

40

50

60

1997 1999 2001 2003 2005 2007 2009 2011 2013

£ billion

R&D

weapons

OAconstruction

ABS

small tools

terminal costs

other

total change

Contributions to GDP growth

18

-2

0

2

4

6

8

10

2009 Q2 2010 Q2 2011 Q2 2012 Q2 2013 Q2

Other Net Trade

GFCF HHFCE

GDP

Previously published

-2

0

2

4

6

8

10

2009 Q2 2010 Q2 2011 Q2 2012 Q2 2013 Q2

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

40

45

50

55

60

65

70

75

80

85

1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1

£ billion per quarter

Previously published

Blue Book 2014

Gross operating surplus – financial cos

20

0

5

10

15

20

25

1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1

£ billion per quarter

Previously published Blue Book 2014

Real households’ disposable income growth

21

-2

-1

0

1

2

3

4

5

6

7

1998 2000 2002 2004 2006 2008 2010 2012

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

% changes on previous year

Changes to households’ saving ratio

22

0

2

4

6

8

10

12

14

1997 1999 2001 2003 2005 2007 2009 2011 2013

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 GDP

Previously published Blue Book 2014

23

-15%

-10%

-5%

0%

5%

10%

15%

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

-15%

-10%

-5%

0%

5%

10%

15%

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

Public sector

Households

Financial corporations

Private non-financial corporations

Rest of the World

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

-5.0%

-4.5%

-4.0%

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

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

Previously published Blue Book 2014

Current account of balance of payments, % GDP

Revisions to current account balance

27

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

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

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

-300

-250

-200

-150

-100

-50

0

50

100

150

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

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

-5

-4

-3

-2

-1

0

1

2

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2008 2009 2010 2011 2012 2013 2014

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 -5% -4% -3% -2% -1% 0% 1% 2% 3%

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

Difference

Q2 2009-Q2 2014

Q1 1997 - Q1 2008

Average quarterly output growth, per cent

Job-to-job moves by reason

33

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Non-response Moves to lower occupations

Moves to higher occupations Moves within low occupations

Moves within medium occupations Moves within high occupations

% of employees, 4 quarter moving average

CPI inflation by import intensity

35

-2

-1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014

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