economic forum; tuesday 18 october 2016

ONS Economic Forum Email: [email protected] Twitter: @ONS #ONSeconomy

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ONS Economic Forum 18 October 2016

ONS Economic Forum – October 2016

09.45 Introduction & Welcome

10.00 What’s New

10.40 What’s Next

11.10 Refreshment Break

11.50 The post-referendum UK economy

12.30 Close

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Agenda

Introduction and welcome Jonathan Athow Deputy National Statistician for Economic Statistics

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What’s New Richard Heys Office of the Chief Economic Adviser

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Economic Statistics and Analysis Strategy


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Economic Statistics and Analysis Strategy

• Published on 28 September 2016 following consultation

• Long term vision for economic statistics

• Allows greater scrutiny and assurance of our priorities

• Sets out research and development priorities by theme identifying areas where we are keen to collaborate

• Will be reviewed and updated annually in light of changing needs, priorities and availability of resources

• Implementation runs alongside large volume of regular outputs

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Key themes

National Accounts

Trade and international

Service sector

Devolved, regional and local

Labour market

Prices

Modern economy

Beyond GDP

Productivity

Admin. and other

large datasets

ONS Research


Transformation drivers

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ONS is currently working to

address issues and

recommendations from a number

of recent reviews.

• ESA 10 – European

System of Accounts

2013

• Barker / Ridgeway –

National Statistics

Quality Review 2014

• Johnson - UK

Consumer Prices Stats –

A Review 2015

• Bean - Independent

Review of UK Economic

Statistics 2016

Addressing priorities

ONS has dramatically invested in improving its access to the best researchers in economic statistics:

Economic Statistics Centre of Excellence (ESCoE)

ONS Fellows and Economic Experts

Economic Statistics Conference (21-23 February 2017)

The ONS Research Facility

Economic Statistics Centre of Excellence

Timetable: • 14 October 2016 – Deadline for receipt of bids

• October & November 2016 – Evaluation of received bids

• December 2016 – Contract awarded

• January 2017 – ESCoE launched

The Economic Statistics Centre of Excellence will offer the capacity for

methodological and conceptual work. This will include best ways to address

the challenge of measuring new forms of economic activity in a globalised

world, meeting the needs for local, city and regional statistics and the

productivity puzzle.

Current research

• ONS has commissioned a number of research projects this year investigating:

– The discount rate to use with Natural Capital and other similar estimates

– Trade asymmetries (different estimates of the same flow)

– Using microdata to explore productivity

– Mixed Income compilation methods

– Measuring Climate Change in Environmental Accounts

– Valuing floodplain protection

– Cultural services valuation

– Classifying PPP projects

ONS Research Facility

Three key mechanisms:

Planned research under the ONS Research Facility - to purchase standalone pieces of research and development work which can quickly impact on the production of economic statistics.

Joint-sponsoring new projects under the ONS Research Facility with OGDs - ONS is open to providing matched funding for research projects which deliver benefits to the delivery of statistics (ONS or OGD), where these feed into economic statistics

Open invitation under the ONS Research Facility - open invitation to researchers to access funds through the ONS Research facility for research topics against our ESAS agenda

Productivity

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Productivity

On 6 October, ONS published its first expanded Productivity Bulletin, including:

1. Estimates of Labour Productivity to Q2 2016

2. Estimates of Public Service Productivity to Q2 2016

3. International Comparisons of Productivity to 2015

4. Estimates of Quality Adjusted Labour Input

5. Review of the measurement of Services output

6. Analysis of the pilot Management Practices Survey of firms in the manufacturing industries

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Productivity

Key findings:

• UK output per hour grew by 0.6% in Q2 2016, resulting in the UK returning to its pre-downturn level of productivity

• The productivity gap between the UK and the leading economies of the G7 remains stubbornly wide – and was unchanged in 2015 compared with 2014.

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International Comparisons of Productivity

• The International Comparisons of Productivity (ICP) release presents a comparison of UK productivity in both per hour and per worker terms against other G7 economies

• Comparability across countries is achieved by using estimates of GDP and labour inputs from a common source (the Statistics Directorate of the OECD) as far as possible, and by converting local currency based measures of GDP using purchasing power parity (PPP) exchange rates

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International Comparisons of Productivity

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80

90

100

110

120

130

140

Index UK = 100

2014 2015

GDP per hour worked, G7

countries, 2014 and 2015

75

80

85

90

95

100

105

110

115

120

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

2007 = 100

UK

G7 excl. UK

G7 excl. UK (projection)

UK (projection)

Constant price GDP per hour worked,

actual and projections, 1997 to 2015

Purpose of MPS pilot Motivation

• There is a well-documented gap in productivity between UK and the leading G7 economies, including US, Germany and France

• Positive association found between use of structured management practices and productivity in US manufacturing businesses in data collected by US Census Bureau’s Management and Organizational Practices Survey (MOPS).

Feasibility

• Are UK businesses willing to answer these questions in a voluntary survey?

• Can we find a long term approach for collecting data on management practices?

Results

• Do we see an association between management practices and productivity, as seen in US?

• How much can management practices explain variation in business level productivity?

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Management and Performance - USA

Source: Bloom et al, 2013,“Management in America”, Center for Economic

Studies Working Paper, US Census Bureau

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Survey Design - Sample

• 1,026 businesses from the Annual Business Survey’s sample for 2015.

• Coverage: • Great Britain

• Reporting Units (businesses) with employment of at least 10, where employment is employees plus working proprietors

• Manufacturing (SIC 2007 section C, divisions 10-33)

• Stratified using employment and industry • Employment bands of 10-49, 50-99, 100-249 and 250+

• Industry at division level (two digit SIC code)

• Final response rate of 68% (702 businesses)

Average score by business type

0.0 0.2 0.4 0.6 0.8 1.0

All manufacturing

Not family-owned

Family-owned

Family-owned and managed

Family-owned, not family-managed

Domestic

Multinationals

UK Multinationals

Non-UK Multinationals

Management Score (2015)

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All manufacturing includes all manufacturing businesses with employment of

at least 10 in Great Britain

Source: ONS

Average score by employment size band

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

All manufacturing Family owned Family owned and managed

Family owned, not family managed

Multinationals

10 to 49 employment 50 to 99 employment 100 to 249 employment 250+ employment


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All manufacturing includes all manufacturing businesses with employment of at least 10 in Great Britain

Source: ONS

Average score by quintile and size band

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0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1 2 3 4 5

All manufacturing 10-49 employment 50-99 employment

100-249 employment 250+ employment


Quintile All manufacturing includes all manufacturing businesses with employment of

at least 10 in Great Britain

Source: ONS

Correlation between Score and Productivity by industry grouping

£0

£10

£20

£30

£40

£50

0.40 0.45 0.50 0.55 0.60 0.65 0.70

Average management score, 2015

Textiles, wearing apparel & leather

Output per hour, 2015, current prices

Chemicals, Pharmaceuticals, rubber, plastics & non-metallic minerals

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All manufacturing includes all manufacturing businesses with employment of at least 10 in Great Britain

Source: ONS

Next Steps

• Further analysis of MPS 2015 (Manufacturing) using productivity estimates at business level

• Services Pilot • Data collected at Reporting Unit level, consistent with

existing ONS business surveys • Sample size of 15,000 respondents • Questionnaire targeted at managers involved in service

delivery • An expanded set of questions on management practices • Wide coverage of Services • Response rate of at least 50% • Survey despatch in February 2017, closing data

collection in August 2017

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VAT data

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VAT project

• 4th October - published the first VAT turnover data.

• VAT data will be an important new data source for GDP, delivering improved industry-level data, better geographic breakdowns and greater volume information about small businesses.

• This new data will give an almost complete picture of the turnover of UK businesses within 5 months of the end of each quarter.

• We aim to include VAT turnover estimates in National Accounts by the end of 2017.

Manufacturing Early Estimates

VAT-derived non-seasonally adjusted current price turnover for UK manufacturing, without adjustment for non-response, £ million

Services Early estimates VAT-derived non-seasonally adjusted current price turnover for selected UK service

sectors, without adjustment for non-response, £ million

What’s Next

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Katherine Kent

Matthew Hughes

National Accounts and Economic Statistics

Trade developments Katherine Kent UK Trade and Transfers


Overview

• Consultation on trade development plan

• New requirements

• Summary of developments

• Focus on a couple of new outputs – Exports of services by region

– Trade in goods by product for EU and non-EU countries

• Focus on future – How we will shape development plan

– Project overview

– EC sales

Trade development plan recap

• Published trade development plan in March 2016 for consultation

• Responses received via a cross Government department workshop and formal responses via email

• Trade is key economic indicator users want increased insight into how to use the data

• Continued need for more detail and timely data for trade in services

• Build confidence in trade statistics

New requirements

• Interest and demand for high quality aggregate UK Trade and granular detail increasing post EU referendum

• New Department for International Trade will have a work programme which will involve ONS trade data

• Following EU referendum there is a need to review some of the requirements and opportunity to review the priorities

Recent Developments and Improvements

• Detailed scrutiny of underlying HMRC data • Analysis of volatility • Improvements to seasonal adjustment • Review and development of UK Trade systems • Identification of additional data sources (e.g. EC Sales data) • Deeper and wider quality assurance • Enhanced commentary and analysis • Strengthening and growing resource capacity • Trade Asymmetries • Trade in Value added • Visualisation of bilateral trade flows • Publishing more detail for trade in goods on volume (CVM) basis • Trade in goods by product for EU countries and Non-EU countries

Recent projects: Regional Exports

• Exports of services by region has been released as experimental statistics for 2011 to 2014

https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/articles/estimatingthevalueofserviceexportsabroadfromdifferentpartsoftheuk/2011to2014

Recent outputs: Trade in goods EU/Non-EU breakdown

• Quarterly now available as a user friendly excel download with clear breakdown for EU and non-EU countries

• Future developments – on a volume basis

• Added analysis/ commentary on this data

In progress: Alternative data sources

• Using HMRC EC sales data

• Exports of services to EU countries

• Some limitations i.e. no product breakdown

• Potential benefits 1. Improve the geographic breakdown for individual countries within

the EU

2. Improve the timeliness of trade in services estimates

3. Quality assure or benchmark quarterly survey results

• Aim to be used in the production of monthly trade in services estimates by July 2017

Next Steps

• Trade project has been set-up to manage these new requirements as well as improvements to systems and processes

• Workshop held with some stakeholders within Government including new trade departments

• Revised development plan to be published by end of 2016

Scope of the 2017 Blue and Pink Books Matt Hughes National Accounts Coordination Division

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Scope of Blue Book 2017

Key BB17 improvements

Interest paid to holders of UK corporate bonds –A new method is being introduced which will have an impact of bond interest payments and receipts.

Sectorisation

–The household and non-profit institutions serving households (NPISH) sectors will be presented separately; and the financial account will be presented separately for 4 types of financial institution.

Actual rental

–Implementation of improved data sources/methods used to estimate actual rental

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Surveys –A series of enhancements to survey data, including;

- the scope of fixed assets used in calculating GFCF has been updated and survey improvements have been introduced.

- the compilation of the financial sector will include data from the new Securities Dealer Survey

- Improved estimates on the number of drug users will be used in illegal drug trade estimates.

- Data from the Higher Education Statistics Agency (HESA) will give a breakdown of domicile of foreign students, allowing for a breakdown of education-related travel.

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Data processing • A review of the GFCF system has resulted in new developments, including improvements to the product breakdown.

–Methodological Improvement • The introduction of new construction indicators. A consultation is planned in autumn 2016.

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Other improvements • The UK is improving prices and volumes methods. The improvements will update the volume series calculation.

• The reference year for chained volume estimates will move from 2013 to 2015.

• The last base year will move from 2013 to 2016.

• Reconciliation between the public sector finance statistics and the national accounts and implementation of classification decisions.

• Commitment to publish historic datasets prior to 1997.

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Communications Similar approach to that taken in previous Blue Books - publishing a series of articles in lead up to the publication

Wave 1 – methodological impact and ‘near final’ current prices articles Publication date: November 2016 and February 2017

Wave 2 – ‘near final’ chained volume measures article Publication date: March 2017 and May 2017

Wave 3 – final current prices & chained volume measures articles Publication date: June 2017 and August

Wave 4 – final current prices & chained volume measures Publication date: Friday 29 September 2017 and Tuesday 31 October 2017

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The post-referendum UK economy

Fiona Massey

Office of the Chief Economic Adviser

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The post-referendum UK economy

• Economic context

- Market reactions

- External indicators

• Emerging post-referendum picture

• Analysis: sterling effects on prices and FDI

• ONS continuing to providing commentary and analysis

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Context – sterling depreciation

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Sterling effective exchange rate, 4 January 2016 to 7 October 2016

Effective exchange rate, 2005=100

Source: Bank of England

Context: UK stock markets

52 Source: FTSE

80

85

90

95

100

105

110

115

05 October 2015 05 November 2015 05 December 2015 05 January 2016 05 February 2016 05 March 2016 05 April 2016 05 May 2016 05 June 2016 05 July 2016 05 August 2016 05 September 2016 05 October 2016

UK FTSE 100 UK FTSE 250

UK FTSE 100 and FTSE 250, 5th October 2015 to 10th October 2016, Index 31/12/2015=100

Context: external indicators

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Source: CIPS, GfK

CIPS Services Business Activity Index Consumer Confidence Index GfK

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48

50

52

54

56

58

-15

-10

-5

0

5

10

Context: move towards safer assets

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UK government securities, UK holdings of monetary gold and long term bonds

issued by the rest of the world, non-seasonally adjusted, current prices.

EMERGING PICTURE

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•Pre-referendum: mostly complete picture for Q2 2016

•Post-referendum: emerging picture for Q3

•Short-term output indicators

•Retail sales

•Trade

•Prices

Pre-referendum picture: GDP Q2 2016

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Contributions to GDP growth, expenditure components, quarter on same quarter of

previous year

GFCF and Employment

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Contribution to GFCF growth, quarter

on previous quarter, 2014 Q1 to 2016 Q2

68

69

70

71

72

73

74

75

Percent

UK employment rate (people aged 16 to 64),

seasonally adjusted,

January to March 2012 to May to July 2016

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Output growth in the main industries of the UK economy, Percentage change

quarter on same quarter of previous year, January 2011 to August 2016

Short term output indicators

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

Jan

Fe

b

Mar

A

pr

May

Ju

n

Jul

Au

g Se

p

Oct

N

ov

Dec

Ja

n

Feb

M

ar

Ap

r M

ay

Jun

Ju

l A

ug

Sep

O

ct

No

v D

ec

Jan

Fe

b

Mar

A

pr

May

Ju

n

Jul

Au

g Se

p

Oct

N

ov

Dec

Ja

n

Feb

M

ar

Ap

r M

ay

Jun

Ju

l A

ug

Sep

O

ct

No

v D

ec

Jan

Fe

b

Mar

A

pr

May

Ju

n

Jul

Au

g Se

p

Oct

N

ov

Dec

Ja

n

Feb

M

ar

Ap

r M

ay

Jun

Ju

l A

ug

2011 2012 2013 2014 2015 2016

Percent Manufacturing Production Construction Services

Retail sales

59

3-month on 3-month growth in retail sales, August 2007 to August 2016

Trade in goods and services

60

UK exports and imports, £million, current prices, seasonally adjusted

40000

42000

44000

46000

48000

50000

2012 Jan 2012 Jul 2013 Jan 2013 Jul 2014 Jan 2014 Jul 2015 Jan 2015 Jul 2016 Jan 2016 Jul

£million Exports Imports

Prices

61

-1

0

1

2

3

4

5

6

Percent

-20

-15

-10

-5

0

5

10

15

Percent

Annual house price rates of change, UK

all dwellings, July 2006 to July 2016

CPI 12-month inflation rate, August 2006

to August 2016

Producer prices

62

Output and input prices, % change

month on same month of previous year

Core output and core input prices,

% change month on same month of

previous year

-15

-10

-5

0

5

10

15

20

25

30

35

2006 Jan

2007 Jan

2008 Jan

2009 Jan

2010 Jan

2011 Jan

2012 Jan

2013 Jan

2014 Jan

2015 Jan

2016 Jan

Percent Output prices Input prices

-15

-10

-5

0

5

10

15

20

25

2006 Jan

2007 Jan

2008 Jan

2009 Jan

2010 Jan

2011 Jan

2012 Jan

2013 Jan

2014 Jan

2015 Jan

2016 Jan

Percent Core output prices Core input prices

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Analysis of sterling effects

•Sterling effect on prices

•Foreign Direct Investment

Analysis: Export and import prices

64

UK export prices and import prices, index 2013 = 100

Analysis: transactions by currency

65

Proportion of export and import transactions completed by currency EU and

non-EU, August 2016, Unweighted, UK

Analysis: PPI input prices

66

Contributions to the 12-month rate of input producer price inflation by component and

overall input PPI rate, August 2014 to August 2016, UK

-20

-15

-10

-5

0

5

10

Percent

Fuel (incl CCL) Crude Oil Home produced materials and food Imported materials Input PPI

Analysis: CPI import intensity

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CPI, contributions to CPI by import intensity and 12-month growth in effective exchange

rate of sterling monthly average (inverted) January 2008 to August 2016, UK

Analysis: FDI

• Modelling result: the value of FDI assets increase (or decrease) by an average of 0.5% in response to a 1.0% decrease (or increase) in the sterling effective exchange rate.

• Increases in the number of positive respondents to the “other gains and losses” question on the FDI survey - contributing £33 billion to the £65 billion increase in FDI assets in Quarter 2 2016.

Source: The impact of recent currency fluctuations on foreign direct investment (FDI) statistics: Quarter 2 (Apr to June)

2016

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ONS providing commentary and analysis

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economic forum; tuesday 18 october 2016

Economy & Finance