Inflation Report May 2006

Demand

Chart 2.1 Nominal GDP (a) (a) The level of nominal GDP in 2005 Q3 and the rate of growth in Q3 and Q4 were distorted by the impact of Hurricane Katrina on the value of insurance services; for more details see pages 12–13 of ONS (2005), 2005 Q3 Quarterly National Accounts. The rate of growth on six months ago therefore provides a more reliable gauge of the recent growth in nominal GDP at the end of 2005 than the rate of growth on a quarter earlier.

Chart 2.2 Volume of retail sales

Chart 2.3 Monthly temperatures (a) relative to their recent historical averages (b) Source: Crown copyright Published by the Met Office. (a) These data refer to the average temperature in the Central England region in a particular month. Further information on these data are available at (b) Defined as the average temperature in a particular month over the ten years 1995–2004.

Chart 2.4 Contributions to quarterly growth in households’ disposable income (a) Net interest and rental payments plus imputed rents, distributed income of corporations and attributed property income of insurance policyholders. (b) Predominantly benefits received less taxes and social contributions paid by households. (c) Wages and salaries plus mixed income. (d) Final consumption expenditure deflator (includes non-profit institutions serving households).

Chart 2.5 The terms of trade (a) (a) The price of UK exports of goods and services relative to the price of UK imports. The level of the terms of trade was affected by the impact of the terrorist attacks on 11 September in 2001 Q3 and by the impact of Hurricane Katrina in 2005 Q3 because these events affected the value of UK exports of insurance services.

Chart 2.6 UK GDP and UK-weighted activity in the world’s other major economies (a) Source: Thomson Financial Datastream. (a) Canada, France, Germany, Italy, Japan and the United States. National data are aggregated together using the Pink Book estimates of the share of UK exports accounted for by each country in 2002.

Chart 2.7 Activity in the United States, Japan and the euro area Source: Thomson Financial Datastream.

Chart 2.8 Contribution of net trade (a) to annual GDP (b) growth (a) These data strip out the estimated impact of VAT fraud from the headline trade data. (b) Chained-volume measure.

The current account and the United Kingdom’s international investment position

Chart A The current account (a) Includes compensation of employees.

Chart B Contributions to the United Kingdom’s international investment position

Tables

Table 2.A Expenditure components of demand (a) (a) Chained-volume measures. (b) Averages of quarterly growth. (c) Includes non-profit institutions serving households. (d) Excludes the alignment adjustment. (e) Percentage point contributions to quarterly growth of real GDP. Percentage changes on a quarter earlier H1 (b) H2 (b) Q1 Q2 Q3 Q4 Household consumption (c) Government consumption Investment Business investment Final domestic demand Change in inventories (d)(e) Alignment adjustment (e) Domestic demand Exports Imports Net trade (e) Real GDP at market prices

Table 2.B Government spending plans (a) Source: HM Treasury. (a) Total managed expenditure. (b) The data have been adjusted for the change in the classification of the BBC licence fee, which is now treated as a tax, rather than as a service charge. As a result parts of the BBC, which were previously classed as being within the public corporations sector, are now treated as part of central government. This re-classification increases government receipts and expenditure by the same amount — assumed in these calculations to be £21/2 billion per year. For more details, see page 268 of HM Treasury (2006), Financial Statement and Budget Report, HMSO. £ billions Pre-BudgetBudget Difference (b) Report 2004/ / / /

Table 2.C Survey data on investment intentions (a) Sources: BCC and CBI. (a) Percentage balance of respondents. These data are not seasonally adjusted. For more details on these surveys see Barnes, S and Ellis, C (2005), ‘Indicators of short-term movements in business investment’, Bank of England Quarterly Bulletin, Spring, pages 30–38. Average since 1997 Q1Q2Q3Q4Q1 BCC services BCC manufacturing CBI manufacturing CBI distributive trades