KATHERINE KENT – ONS 03 NOVEMBER 2015 Trade Estimates 2015Q2: Presentation for users on two important areas i) revisions to volume series and ii) impact of nonmonetary gold

Revisions to 2015Q2 Following publication of Quarterly National Accounts (QNA) on 30 September 2015, ONS has been analysing revisions to trade in the latest quarter (2015 Q2), between the second estimate of GDP published on 28 August 2015 and QNA. Although the quarter on quarter contribution of trade to GDP was only revised minimally from 1.0 percentage points to 1.4 percentage points the composition within the two datasets is different. Looking at the components; export and imports, there was a switch from strong export growth offset slightly by some growth in imports at the time of the second estimate of GDP, to weaker growth in exports and a large decrease in imports. These movements were briefed on at the time in terms of commodities and pointed to revisions from Blue Book changes.

Divergence between price indices and implied deflator Range of price growth for imports (quarter on previous year, %)

Divergence between price indices and implied deflator excluding oil and erratics

What series are affected? Issue is with volume (CVM) Trade in Goods (imports and exports), not services, not CP Divergence between published price indices and implied deflator (CP/CVM) in tail (2014Q1 onwards) Divergence in earlier time periods part explained by adjustments e.g. smuggling, but not in the tail Instead, we have concluded that it is a result of the way 2014 was constrained for Blue Book.

Factors underlying the issue Primary cause is constraining during Blue Book production to an earlier 2014 dataset that was closed down Trade in goods for 2014 delivered for GDP GDP for 2014 closed down (extent of issue not known) Constrained lower level TiG CVM data by commodity to be in line with TiG CVM data in GDP Subsequently processed 2015 Q1 and Q2 and found this exacerbated the issue.

Price index At this stage for users analysing price movements we are advising them to use the published price indices However there appears to be a irregular movement into 2014Q1. Unexplained uptick in implied import deflator

Proposed Action A note explaining the issue has been published on UK trade release page and Quarterly National Accounts page Advise users to use the published trade price indices, rather than the implied deflators for analysis of trade price movements Analysis is ongoing of full impact, but plan to revise in December. 10 December 2015 (Trade) and 23 December 2015 (QNA)

Discussion on volume estimates

Nonmonetary Gold (recap) International guidelines state that nonmonetary gold which is held in allocated gold accounts should be recorded as trade in goods and valuables. Referred to as nonmonetary gold but also cover precious metals ( inc. platinum and palladium) HMRC nonmonetary gold estimates are large and not considered best measure on a change of ownership basis. Instead estimates collected by BoE ‘form PM’ from 2013 Can only be collected on a net basis, based on transactions between the six clearers of the London Bullion Market Highly confidential – smoothing model applied. Also to some extent removes the volatility so impact of trade balance lessened Within UK trade publication treated as ‘Erratics’; along with ships, aircraft, precious stones and silver

Changes to the recording of net exports of nonmonetary gold Although implemented initially in Blue Book 2014, changes have been made this year following concerns around the confidentiality, absolute size and volatility. Consider this completely fictitious version of the collected and smoothed gold series: Data are collected on a net basis in Blue Book 2014; positive values shown as exports and negative values shown as imports Now these series are smoothed individually and therefore can have both exports and imports of nonmonetary gold in same period. Then the net basis calculated in standard way (exports-imports)

Erratics Erratics are classed as high value low volume, for example ships and aircraft. Erratics also include precious stones, silver and nonmonetary gold Often traded one month then absent the next

Revisions to Erratics as a result of nonmonetary gold (Exports)

Revisions to Erratics as a result of nonmonetary gold (Imports)

Revisions to Erratics as a result of nonmonetary gold (Balance)

Discussions on nonmonetary gold