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ONS Economic Forum Email:economicforum@ons.gov.uk Twitter:@ONS #ONSeconomy Website: http://www.ons.gov.uk/ons/about-ons/get- involved/events/events/economic-forum/index.htmlhttp://www.ons.gov.uk/ons/about-ons/get- involved/events/events/economic-forum/index.html 8 October 2014 1 Slide 2 Whats new Peter Patterson, Deputy Chief Economic Adviser ONS Economic Forum 8 October 2014 2 Slide 3 Improvements Improvements to methods GNI reservations Continuous improvement New international frameworks (ESA 2010, BPM6, MGDD) New data (from 2010 onwards) 3 Slide 4 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 Slide 5 Improvements to methods: Continuous improvement Gross Fixed Capital Formation Inventories Industry reviews 5 Slide 6 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 Slide 7 New International Frameworks R&D Weapons Decommissioning costs Pensions Small Tools BPM6 changes 7 Slide 8 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 Slide 9 Higher levels of nominal GDP 9 Slide 10 Real GDP growth 10 Slide 11 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 Slide 12 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 Slide 13 Comparison of UK recessions 13 Real GDP, index numbers, pre-recession peak = 100 Quarters following pre-recession peaks Slide 14 Productivity (output per hour) 14 Slide 15 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 Slide 16 Total fixed investment (GFCF) 16 Slide 17 Revisions to GFCF by component 17 Slide 18 Contributions to GDP growth 18 Cumulative contributions of expenditure components to GDP growth since 2009Q2 (percentage points) Slide 19 Gross operating surplus: PNFCs 19 Slide 20 Gross operating surplus financial cos 20 Slide 21 Real households disposable income growth 21 Slide 22 Changes to households saving ratio 22 Slide 23 Sectoral financial balances: BB14 changes Net lending/borrowing, % of GDP Previously publishedBlue Book 2014 23 Slide 24 Current Account: key changes ChangeRationale 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 Slide 25 Current Account: key changes ChangeRationale 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 Slide 26 Current account balance 26 Slide 27 Revisions to current account balance 27 Slide 28 International investment position 28 Slide 29 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 Slide 30 LFS re-weighting for 2011 Census 30 Slide 31 Contributions to productivity growth 31 Slide 32 Output growth by sector 32 Slide 33 Job-to-job moves by reason 33 Slide 34 Job-to-job moves by occupation type 34 Slide 35 CPI inflation by import intensity 35 85 class level components of CPI according to degree of import penetration in household consumption