ONS Economic Forum

Economic Forum
Chair – Grant Fitzner
@ONSfocus #ONSEconForum slido #28660
Chief Economist
Director, Macroeconomic and
Environment Statistics and Analysis
@GrantFitzner

Agenda
09:30am – 09:35am Welcome and introduction – Grant Fitzner, Chief Economist, Office for National
Statistics
09:35am – 09:50am State of the Economy – Sam Beckett, Second Permanent Secretary, Office
for National Statistics
09:50am – 10:05am The Purchasing Power of GDP – Sumit Dey-Chowdhury, Office for National
Statistics
10:05am – 10:15am Transformation of UK Consumer Price Statistics: Rail fares – Andrew Whiteley
and Emma Halshaw, Office for National Statistics
10:15am – 10:25am Questions and Answers
10:25am – 10:30am Closing remarks – Grant Fitzner, Chief Economist, Office for National Statistics

State of the Economy
February 2023
Sam Beckett
Second Permanent Secretary
Joint Head of the Government Economic Service,
Office for National Statistics

GDP was flat in Quarter 4 2022 but fell 0.5% in
December
Source: ONS – Quarterly National Accounts Source: ONS – Monthly GDP
-0.25 -0.2 -0.15 -0.1 -0.05 0 0.05 0.1
Human health and social work activities
Education
Arts, entertainment and recreation
Transport and storage
Wholesale and retail trade
Accommodation and food service activites
Other service activities
Informations and communication
Real estate activites
Public administration and defence
Activities of HH as employers
Financial and insurance activities
Administrative and support activities
Professional, scientific and technical activities
Percentage Points
Services contributions to real GDP,
December 2022
75
80
85
90
95
100
105
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
2021
Q1
2021
Q2
2021
Q3
2021
Q4
2022
Q1
2022
Q2
2022
Q3
2022
Q4
2019
Q4
=
100
Level of real GDP,
Quarter 1 2019 – Quarter 4 2022

The trade in goods deficit widened to nearly 10%
in 2022 in response to the energy price shocks
Source: ONS – UK Trade Source: ONS – Purchasing Power of GDP; IMF – Primary
Commodity Prices
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Per
cent
of
nominal
GDP
Trade in Goods
Quarter 1 2010 - Quarter 4 2022
Fuels All commodities, Excluding unspecificed goods
0
100
200
300
90
95
100
105
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2019
=
100
2019
=100
UK terms of trade vs Global energy price index,
Quarter 1 2010 - Quarter 4 2022
Terms of Trade (LHS)
Energy Index (RHS)

Global supply chain pressures are easing
Source: ONS – Consumer Price Inflation; New York Federal
Reserve – GSCPI; Bank of England – Monetary Policy Report
Source: Bank of England – Inflation Attitudes Survey
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
-2
0
2
4
6
8
10
12
2007 2009 2011 2013 2015 2017 2019 2021 2023
SD
from
average
value
Per
cent
CPI inflation vs global supply chain pressures
UK CPIH OECD Forecast GSCPI
0
1
2
3
4
5
Feb-09 Aug-10 Feb-12 Aug-13 Feb-15 Aug-16 Feb-18 Aug-19 Feb-21 Aug-22
Per
cent
Inflation expectations, Feb 2009-Nov 2022
1-year ahead 2-year ahead 5-year ahead

Job vacancies are beginning to fall but reported
and expected wage inflation are still increasing
Source: ONS – Labour Markets Source: Bank of England – Decision Maker Panel survey
-150000
-100000
-50000
0
50000
100000
150000
-1.2
-0.8
-0.4
0
0.4
0.8
1.2
V/U
Unemployment vs Vacancies
January 2017 - November 2022
MonM Change in Vacancies Vacancy/Unemployment ratio (LHS)
4.0
5.0
6.0
7.0
May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22
Per
cent
Reported and expected wage growth
Wage growth, last 12mths Wage growth, next 12mths

Inflation is driving pay settlements
Source: Bank of England – Monetary Policy Report Source: ONS – Business Insights and Impacts survey
-20 -10 0 10 20 30 40 50 60
Economic uncertainty
Change in profitability
Ability to pass on cost increases to prices
Change in non-pay rewards
Union activity
Change in productivity
Change in the NLW
Ability to recruit and retain staff
Consumer price inflation (expected)
Market/industry pay changes
Consumer price inflation (current)
Net balance of respondents (per cent)
Factors affecting pay settlements in 2023
0 5 10 15 20 25 30 35
All
Services
Construction
Production
Expected price rises - goods and services sold,
net change
January 2023 February 2023

Individuals are reducing their consumption
Source: ONS – Opinions and Lifestyle survey Source: ONS – Business Insights and Impacts survey
0 10 20 30 40 50 60 70
Using savings
Cutting back on non-essential vehicle journeys
Spending less on food shopping and essentials
Shopping around more
Using less fuel such as gas or electricity at home
Spending less on non-essentials
Per cent
Proportion of adults taking actions because of
increases in the cost of living
Early-January 2022 Mid-June 2022 Early-January 2023
-25 -20 -15 -10 -5 0 5
All
Services
Construction
Production
Net percentage
Reported and expected turnover increase, net change
December Reported Febuary Expected

The economic outlook is still challenging
-2 0 2 4 6 8 10 12
World
United Kingdom
Germany
France
United States
Japan
China
India
Per cent
Cumulative real GDP, 2023-24
January 2023 projections
October 2022 projections
Sources: Bank of England – Monetary Policy Report Source: IMF – World Economic Outlook
95
96
97
98
99
100
2024 Q4
2024 Q2
2023 Q4
2023 Q2
2022 Q4
2022 Q2
2021 Q4
2021 Q2
2019
Q4
=
100
UK Gross Domestic Product
ONS - QNA
Bank of England - November 2022
Bank of England - February 2023

Conclusions
• The UK narrowly avoided falling into a technical recession as the
economy flatlined in Quarter 4 2022
• The labour market remains tight but there are some signs of a
cooling in labour demand
• External forecasts point to a challenging year ahead

Senior Economist
The Purchasing Power of
GDP
Sumit Dey-Chowdhury

There has been a decline in UK terms-of-trade
Ratio of export prices to import prices (PX/PM)
• Rate of exchange between internationally
traded goods and services produced by one
country relative to another country
• How many imports an economy can purchase
in its currency per unit of its exports
Movements in the terms-of-trade
• International cost of factors of production
• Exchange rate movements
• Rates of inflation between countries
• Productivity between countries
70
75
80
85
90
95
100
105
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
2019
=
100
The UK Terms-of-Trade

Higher fuel prices has driven goods import inflation
The UK is a net energy importer
• Fuel price changes explain over 3/5 of the
increase in goods imports prices over the last
year
• Energy prices tend to be a key driver of
producer price inflation – direct and indirect
effects
Higher import prices
• Food and live animals – e.g. dairy and eggs
• Crude materials
• Fuels – e.g. gas and electricity
• Animal and vegetable oils & fats
• Chemicals – e.g. fertiliser
-5
0
5
10
15
20
25
30
2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3
Per
cent
Contribution of fuel import price changes to
change in goods imports prices
SITC 3 Goods Imports

The largest negative UK terms-of-trade effect
since the mid-1970s
A change in the terms-of-trade has an impact on
the purchasing power of a country
• Real GDP: The volume of goods and services
produced by a country
• Real GDI: The purchasing power of a
country’s GDP over goods and services in
global markets
Real GDI falls relative to real GDP: (PX/PM)↓
• The purchasing power of domestic output is
diminished – a negative impact on welfare
• The same volume of exports can now be used
to purchase a lower volume of imports
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Percentage
points
Change in real GDI – Change in real GDP

Much of Europe has experienced a fall in
its purchasing power
All open economies have experienced a change
in their purchasing power
• 11 of these 37 OECD countries have had a
positive impact on their purchasing power
(e.g. Norway; Canada; USA)
• 26 of these 37 OECD countries have had a
positive impact on their purchasing power
(e.g. France; Italy; Germany; Japan)
-12
-10
-8
-6
-4
-2
0
2
4
Colombia
Greece
Ireland
Estonia
Canada
Denmark
Luxembourg
Israel
United
States
Latvia
Iceland
Australia
Finland
Switzerland
New
Zealand
France
Slovenia
Sweden
Portugal
United
Kingdom
Poland
Japan
Austria
Costa
Rica
Netherlands
Germany
Italy
Spain
Chile
Türkiye
Czech
Republic
Belgium
Slovak
Republic
Korea
Hungary
Lithuania
Percentage
points

Conclusions
The fall in the purchasing power of the UK in the last year explains the
unavoidable hit to UK real national income
• Production
• Welfare
The size and persistence of this terms-of-trade effect
• How these export and import prices evolve
• The reliance of net energy imports – (1) import substitution and (2) energy
intensity of GDP

Annex
70
75
80
85
90
95
100
105
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
2019
=
100
The UK Terms-of-Trade
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Percentage
points

Business Change Implementation Team
Prices Division
Transformation of UK
Consumer Price Statistics:
Rail fares
Andrew Whiteley
Emma Halshaw

How are we transforming consumer prices?
0 5 10 15 20 25 30 35
Communication
Education
Clothing and footwear
Furniture, household equipment and
maintenance
Miscellaneous goods and services
Restaurants and hotels
Recreation and culture
Transport
Alcoholic beverages and tobacco
Food and non-alcoholic beverages
Housing, water, electricity, gas and other
fuels
Rental prices
(~24% CPIH)
Grocery
scanner data
(13% CPIH)
Rail Delivery Group
(transaction) and Auto
Trader (web provided)
data (2.3% CPIH)
• Obtaining Alternative Data Sources (ADS),
including scanner and web-scraped data
• Researching and integrating new methodologies
to process the data
• Developing statistical systems
• Embedding new processes
Allows us to improve the accuracy, efficacy and
representativity of consumer price inflation statistics
Primarily, new data will help us to inform the narrative
around what is driving inflation for our users.

Rail fares data in CPIH, CPI, and RPI
• Transaction-level rail fares data will be incorporated in the CPIH, the CPI
and the RPI from February 2023, first published on 22 March 2023
• Historic impact analysis shows that the transformation of rail fares indices
would not have affected CPIH, CPI or RPI at headline level
• Small impacts (up to 0.1 percentage points) at Transport division level
• The key benefit of new data sources is the greater depth of
understanding on what is driving consumer prices trends

Rail fares: Improved granularity of indices
• Data provided by the Rail Delivery Group, sourced from LENNON ticket
revenue system
• Publishing six new indices based on ticket types:
• Further stratification by individual regions in GB is calculated but not
published
• GB peak
• GB off-peak
• GB super off-peak
• GB advance
• GB short season
• Northern Ireland

Quality assurance and testing
• Conducted an extensive readiness assessment
• Successfully mimicked live production using real data
• Thorough testing complete, providing a high level of confidence in the
data, system behaviour and their reliability
• Reviewed contingency plans and mitigating actions to ensure business
readiness for potential risks to monthly production round

Update on second-hand cars
• Data and methods are more complex than rail fares (such as filtering and
imputation procedures)
• Quality assurance highlighted challenges in the methods that may affect
reliability of statistical production process
• We will be incorporating only rail fares into headline consumer price
statistics at this time
• Plans and timelines for second-hand cars will be updated in Spring 2023

Final impact of transformed rail fares indices on
12-month rate for CPIH transport division
• Overall impact negligible on
headline consumer price
statistics
• Rail fares has contributed to less
than 7% of transport division of
CPIH since 2019
• Implemented improved outlier
detection and removal
methods, as detailed in
our Outlier detection for rail fares
and second-hand cars dynamic
price data methodology

Transformation offers greater insights – by ticket type
Source: ONS Source: ONS

What's next for prices transformation
• February 2023: we will incorporate the rail fares data into headline
consumer price statistics
• 22 March 2023: we will first publish our CPIH, CPI and RPI which
incorporates our rail fares data
• Spring 2023: we will publish our updated timelines as part of our
Transformation of UK consumer price statistics series
More detail surrounding the work covered in this presentation, can be
found in our most recent publication.

Transformation timeline
March 2023 November 2023 January 2025
March 2024
Go/no-go decision
Final impact assessment
to determine suitability of new
data for second-hand cars,
groceries & private rents
Rail fares new data goes
into live production
Rolling programme Further
data acquisition and research
for priority categories
Second-hand cars,
grocery scanner
and private rents
data into live production
November 2022 –
January 2023
Go/no-go decision
Final impact assessments to
determine suitability of new data
for rail fares and second-hand
cars

Closing remarks
Grant Fitzner
Chief Economist
Director, Macroeconomic and
Environment Statistics and Analysis
@GrantFitzner

Forthcoming ONS economic analysis
13 February 2023 Labour demand volumes by profession and local authority, UK: January 2017 to December 2022
13 February 2023 Characteristics associated with experiencing energy and food insecurity among adults in Great
Britain: 22 November to 18 December 2022
13 February 2023 Characteristics of homeworkers, Great Britain: September 2022 to January 2023
14 February 2023 Labour Market Theme Day
15 February 2023 Prices Theme including CPIH-consistent inflation rate estimates for UK household groups: October
to December 2022
17 February 2023 How workforce qualification levels differ across England and Wales
17 February 2023 UK trade in goods, year in review: 2022
20 February 2023 Impact of increased cost of living on adults across Great Britain: September 2022 to January 2023
21 February 2023 How has discretionary spending been impacted in recent winters?
27 February 2023 Subnational labour market trends, England and Wales: Census 2021
03 March 2023 The impact of population changes on economic inactivity trends, UK: 2019 to 2022
All information on upcoming analysis can be found via the ONS website

Dates for your diary
13 March 2023 ONS Economic Forum – Registration to open shortly
15 March 2023 Annual crime and justice statistics forum 2023
Further details on the above event and any upcoming events will be published at
ons.gov.uk/economicevents

Transforming the ONS’s household financial
statistics consultation
We are seeking views on our ambitious plans for the transformation of our household financial
statistics.
These statistics cover the income, expenditure and wealth of UK Households and are a vital source
of information for understanding people’s finances including the effects from the rising cost of living.
This consultation sets out our plans for the next two and half years, laying out necessary
transformation steps, consistent with that longer term aim and building on our existing research in
this space.
We ask you to consider our proposals for the transformation of household financial statistics and to
provide your responses to this consultation by Thursday 23 February 2023.

Your views matter – complete our stakeholder
satisfaction survey
@ONSfocus #ONSEconForum
At the ONS, we're committed to ensuring we continue to provide high quality data and analysis for
the public good, and that our statistics meet user needs.
We have launched our annual stakeholder satisfaction survey and would be grateful if you could
take a few minutes to complete it.
It can be completed anonymously and will remain open until 27 February 2023.
Click the link to complete the survey. ONS stakeholder satisfaction survey - Office for National
Statistics
slido #28660

Thank you for attending the
Economic Forum
You can keep up to date on all upcoming events via
ons.gov.uk/economicevents
If you would like to ask a question or provide any feedback, please do so
via economic.engagement@ons.gov.uk

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