1. Impact of changes in Blue Book and Pink Books 2013 Andrew Walton, Phillip Davies, Marilyn Thomas 27 June 2013

2. Summary Introduction Main changes to methods Impact on GDP Expenditure components Sector and Financial Accounts Balance of Payments

3. Introduction Published today QNA UKEA Quarterly BoP Slimline Business Investment Several supporting articles Tomorrow Index of Services Productivity

4. Introduction 31 July Blue Book Pink Book Supply and Use Tables Full Business Investment BoP geography

5. Changes in Blue Book 2013 Reference year 2010 Quality improvements to Supply and Use Tables Private Non-Financial Corporation’s (PNFC’s) profits Rental estimates, and Imputed rental Gross Operating Surplus (GoS) for own account software Investment in artistic originals

6. Changes in Blue Book 2013 Alignment of the National Accounts with Public Sector Finances Measurement of bonds liabilities, and Measurement of UK Private Non-Financial Corporations’ (PNFCs) overseas deposits and loans Gross Fixed Capital Formation, and Changes in inventories systems Improved estimation of some industries Seasonal adjustment of construction output

7. Impact on GDP - nominal

8. Levels raised by a little over 1% on average by methods changes This amounts to £20.8 billion in 2012 Switch between 2008 and 2009 – new quarterly profits 2008 growth revised up 0.4 pp 2009 growth revised down 0.4 pp

9. Impact on GDP – real

10. Average growth since 1997 revised down by 0.1% a year Bigger changes in individual years 2001 and 2009 down 2004 and 2005 up GFCF is biggest impact But profile of HMRC profits also important in 2008 and 2009

11. Impact on real GDP – downturn Peak to trough is now 7.2% Previously published as 6.4%, 7.1% and 6.3% Duration of downturn is now 5-6 quarters Initially 6 quarters, revised to 5 quarters in BB2011 Q2 and Q3 2009 flat (actually down £16 mn)

12. Impact on real GDP – downturn

13. Impact on real GDP – recovery 46% of loss in output during recession has been recovered Previously estimated as 59% Revision largely due to increased ‘peak to trough’ But slight downward revision to path of recovery (3.5% above trough revised from 3.9%) No longer two consecutives quarters of negative growth in 2011/12 (to 1 dp) Q1 2012 revised from -0.1% to zero (a fall of £250mn to a fall of £26mn)

14. Impact on real GDP – recovery

15. Household expenditure Separate article published today Number of improved methods and data sources Imputed rental (+£30 bn in 2011) Repairs and maintenance (-£13bn) Supply and use balancing (+£3bn) Financial services (-£3bn) Internet subscriptions (-£1bn) Smuggling (+ less than half a billion) Total revision in 2011 is +£17bn

16. Gross Fixed Capital Formation Key improvements to deflation and seasonal adjustment improved construction of the asset, sector and industry series: asset, industry and sector series constructed directly improved deflation and chain linking methodology: at more detailed asset, sector and industry level full set of Producer Price Indices (PPI) deflators used Business Spending on Capital Items Survey is now used, for weights improved seasonal adjustment: seasonal adjustment on acquisitions and disposals separately

17. Gross Fixed Capital Formation Artistic originals (+£2bn in 2012) Own account software mark-up (+£2bn) Overall impact Growth revised from +1.5% to +0.5% in 2012 Not a consistent pattern but reduces growth on average

18. Change in Inventories More detailed chain linking and seasonal adjustment Acquisitions and disposals Lower level industry and asset New deflators still being quality assured

19. Sector and Financial Accounts Financial Account impacted by methods improvements Alignment with Public Sector Finances Bonds PNFCs overseas loans and deposits Further details in articles Saving Ratio 4.2% in latest quarter, lowest quarterly saving ratio since 2009q1 (3.4%) 6.7% in 2012 and 2011 Real household disposable income (RHDI) Fall of 1.7% in latest quarter, largest fall since 1990 q2 (1.7%) Rise of 1.4% in 2012 (Fell 1.2% in 2011)

20. Any Questions?

21. Sector & Financial Accounts 2013 Q1 Phillip Davies

22. Summary Financial Account methods changes Sector Financial Accounts Key Indicators Links to Methods Papers & Publications (to follow!)

23. Financial Account Methodological Changes o Bonds o Overseas deposits and loans o Public Sector Finance alignment

24. Bonds ONS undertook a review of the Bonds liability methodology which recommended: Converting bond liabilities estimates from nominal to market values, using a weighted index of bond prices, so that they move into line with international (SNA2003/ESA 95) requirements Using aggregate data from the Bank of England Balance Sheet Survey of Banks and Building Societies to measure MFIs bond liabilities Improving the processing and sectorising of data on quoted UK bonds collected from the London Stock Exchange Using data from the London Stock Exchange as a source for measuring the bond liabilities of insurance companies and pension funds Treating the Rest of the World bond assets as the residual difference between total bond liabilities and assets, due to a lack of data coverage for the sector In addition to these actions, the bond review recommended a change in the way bond estimates are presented in the financial account Now presented in a combined F.3325-6

25. Bonds continued 2003 onwards but presentation back to 1997 Financial account (flows) and balance sheet (levels) Impacted PNFCs bond liabilities

26. Old New

33. Overseas deposits and loans Changes to estimates of UK deposits with and loans from overseas banks Previously overstating overseas deposits for PNFCs and understating for OFIs Split moved from 80% PNFCs & 10% OFI to growth in line with the sectors UK bank deposits and loans Affects F.229 & F.419 across all sectors 2003 onwards Impacts mainly to liabilities of PNFCs & OFIs Financial account and balance sheet

38. SFA Key Indicators Saving Ratio 4.2% in latest quarter Lowest quarterly saving ratio since 2009q1 (3.4%) 6.7% in 2012 and 2011 Real household disposable income (RHDI) Fall of 1.7% in latest quarter Largest fall since 1990 q2 (1.7%) Rise of 1.4% in 2012 (Fell 1.2% in 2011)

41. Publications & Articles Bonds Overseas deposits and loans PSH

42. Further details? Bonds & Overseas deposits: Harry Duff harry.duff@ons.gsi.gov.ukharry.duff@ons.gsi.gov.uk Public Sector David Mathewson david.mathewson@ons.gsi.gov.uk david.mathewson@ons.gsi.gov.uk UKEA Phillip Davies or Michael Rizzo phillip.davies@ons.gsi.gov.uk michael.rizzo@ons.gsi.gov.uk phillip.davies@ons.gsi.gov.uk michael.rizzo@ons.gsi.gov.uk

43. Balance of Payments Also impacted by changes to Financial Account Improvements to debt securities (bonds) liabilities Improvements to PNFCs overseas loans and deposits (and OFIs overseas loans and deposits) Further details in articles

44. Questions?