ONS Economic Forum

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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)

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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

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Improvements to methods: ‘Continuous improvement’

• Gross Fixed Capital Formation

• Inventories

• Industry reviews

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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

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New International Frameworks

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

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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

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Higher levels of nominal GDP

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Real GDP growth

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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

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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

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Comparison of UK recessions

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

Quarters following pre-recession peaks

Productivity (output per hour)

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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

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Total fixed investment (GFCF)

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Revisions to GFCF by component

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Contributions to GDP growth

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

Gross operating surplus: PNFCs

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Gross operating surplus – financial cos

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Real households’ disposable income growth

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Changes to households’ saving ratio

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Sectoral financial balances: BB14 changes

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

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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.

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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

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Current account balance

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Revisions to current account balance

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International investment position

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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)

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LFS re-weighting for 2011 Census

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Contributions to productivity growth

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Output growth by sector

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Job-to-job moves by reason

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Job-to-job moves by occupation type

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CPI inflation by import intensity

3585 class level components of CPI according to degree of import penetration in household consumption