Economic Forum - 16 May 2022

1. Economic Forum 16 May 2022 @ONSfocus #economicforum slido #571430

2. Deputy Chief Economist Office for National Statistics @ONSfocus #economicforum slido #571430 Economic Forum Ed Palmer

3. Agenda 09:30 – 09:35 Welcome and introduction – Ed Palmer (Chair), Deputy Chief Economist, ONS 09:35 – 09:50 State of the UK Economy – Grant Fitzner, Chief Economist, ONS 09:50 – 10:05 Looking beyond GDP and providing insights on climate change – Ian Townsend and Richard Heys 10:05 – 10:20 Experimental regional gross fixed capital formation (GFCF) estimates by asset type: 1997 to 2020 – Laura Garcia Blasco and Michael Becker 10:20 – 10:40 Q & A 10:40 – 10:45 Closing remarks @ONSfocus slido #571430 #economicforum

4. Chief Economist and Director of Macroeconomic Statistics and Analysis @GrantFitzner @ONSfocus #economicforum slido #571430 State of the UK Economy May 2022 Grant Fitzner

5. Economic growth slowed in February & March Source: ONS – Monthly GDP Source: OECD and ONS first quarterly estimate -1 0 1 2 3 Mar 2021 May 2021 Jul 2021 Sep 2021 Nov 2021 Jan 2022 Mar 2022 Services Production Construction GDP Percentage points Contributions to Monthly GDP, UK Q1 2022 GDP vs pre-pandemic (Q4 2019) levels -1% 0% 1% 2% 3% Germany Italy United Kingdom France Canada United States @ONSfocus #economicforum slido #571430

6. Business investment remains subdued UK Gross fixed capital formation and business investment, chained volume (100= Q1 1997) @ONSfocus #economicforum slido #571430

7. Goods imports higher, exports relatively flat UK good exports, excluding precious metals @ONSfocus #economicforum slido #571430 UK goods imports, excluding precious metals £0bn £5bn £10bn £15bn £20bn £25bn £30bn Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 EU exit deadlines End of EU transition period Import data collection changes £0bn £5bn £10bn £15bn £20bn £25bn £30bn Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Coronavirus Pandemic EU Non-EU Export data collection changes End of EU transition period EU exit deadlines Source: ONS – UK Trade

8. Inflation remains well above historical averages Source: ONS – Producer prices, Consumer prices -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% Jan- 06 Oct- 07 Jul-09 Apr- 11 Jan- 13 Oct- 14 Jul-16 Apr- 18 Jan- 20 Oct- 21 2nd Decile 9th Decile Source: ONS – Household costs indices -10% -5% 0% 5% 10% 15% 20% 2010 JAN 2012 JAN 2014 JAN 2016 JAN 2018 JAN 2020 JAN 2022 JAN CPI PPI (input) CPI experienced by high and low income households @ONSfocus #economicforum slido #571430 UK consumer and producer prices, annual change

9. Business and consumer responses to inflation 0% 10% 20% 30% 40% 50% 60% Other Request change to mortgage Take up employment Borrow money Ask for help from family or… Ask for a pay increase in… Look for a higher-paid job Work longer hours Use existing savings Save less each month Household plans to fund cost of higher inflation @ONSfocus #economicforum slido #571430 Businesses passing price increases onto customers Source: ONS Business Insights & Conditions Survey Source: NMG Consulting, Bank of England survey 0% 10% 20% 30% 40% 50% 60% 70% 80% All Services Construction Production Early March 2022 Early April 2022 Late April 2022

10. Lower business turnover, consumer confidence -50 -40 -30 -20 -10 0 10 20 01/1985 01/1991 01/1997 01/2003 01/2009 01/2015 01/2021 Source: GfK Consumer confidence barometer UK confidence nearing 2020 pandemic lows @ONSfocus #economicforum slido #571430 Net change in business turnover expectations, April 2022 Source: ONS Business Insights & Conditions Survey -8% -6% -4% -2% 0% Production Construction Services All businesses

11. Earnings growth and industry shortages @ONSfocus #economicforum slido #571430 Source: ONS Average weekly earnings, Job vacancies, Unemployed persons Note: Growth for combined industries is weighted according to AWE employment share A, B, D, E** Agri/Mining/Utilities C Manufacturing F Construction G Wholesale & Retail H Transport and Storage I Accommodation and Food J Info and comms K, L Finance and Real Estate M Pro Sci Tech N Admin and Support O Public Admin P Education Q Health R, S, T** Arts, Ent/Other [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] -4% -2% 0% 2% 4% 6% 8% 10% 12% 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 Annual growth in average earnings, 3mma Number of unemployed people per vacancy by industry Stronger pay pressure Size = Employment share Shortages more likely

12. Summing up • Although UK GDP rose 0.8% in Q1, monthly growth has slowed • More businesses are passing on higher costs to consumers, while households are planning to run down their savings • Other headwinds to growth include higher interest rates, weak consumer confidence and sluggish business investment • UK goods imports markedly higher, exports remain relatively flat, • Little sign to date a tight labour market is driving earnings higher @ONSfocus slido #571430 #economicforum

13. @ONSfocus #economicforum slido #571430 Looking beyond GDP and providing insights on climate change Ian Townsend Deputy Director – Environment

14. Looking ‘Beyond GDP’ • Showing UK economic, environmental & social progress • Three publications, our blog post summarises: 1. Climate change insights, alongside 1st GDP estimate 2. Measuring residence emissions quarterly proposals 3. ‘Beyond GDP’ workplan (to follow) • Next quarter (Aug): wellbeing focus, dashboard update @ONSfocus #economicforum slido #571430

15. Climate change insights • Latest statistics and analysis from across the GSS • Office for Statistics Regulation and Commons EAC • Uses six themes as the climate change statistics Portal • Pilot – user feedback very welcome • Future editions: August, November during COP27 @ONSfocus #economicforum slido #571430

16. (1) Climate & Weather Average number of ‘heating degree days’ in Q1 2022, 1.3 lower than a year ago 0 2 4 6 8 10 12 Jan-Mar 2020 Apr-Jun 2020 Jul-Sep 2020 Oct-Dec 2020 Jan-Mar 2021 Apr-Jun 2021 Jul-Sep 2021 Oct-Dec 2021 Jan-Mar 2022 Current Long-term mean Source: Department for Business, Energy and Industrial Strategy – Energy trends (using Met Office data) Average heating degree days and long term mean by quarter, Great Britain Heating degree days @ONSfocus #economicforum slido #571430

17. (2) Emissions All three key emissions measures have generally followed a downwards trend 0 100 200 300 400 500 600 700 800 900 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Carbon footprint emissions Territorial emissions Residence emissions Source: Department for Business, Energy and Industrial Strategy, Department for Environment, Food and Rural Affairs, Office for National Statistics Residence, territorial and footprint emissions, UK Mt CO2e @ONSfocus #economicforum slido #571430

18. (3) Drivers Energy ratio has continued to fall, following volatility due to the pandemic Source: Department for Business, Energy and Industrial Strategy – Energy Trends, Office for National Statistics - GDP Energy ratio, UK Q1 2016 = 100 75 80 85 90 95 100 105 Quarter 1 2016 Quarter 1 2017 Quarter 1 2018 Quarter 1 2019 Quarter 1 2020 Quarter 1 2021 @ONSfocus #economicforum slido #571430

19. (4) Impacts Climate risks: Over 6 in 10 adults expect rising UK temperatures will directly affect them by 2030 0 10 20 30 40 50 60 70 None of these Rising sea-levels Water supply shortages Flooding from rainfall Other extreme weather events Reduced access to safe and affordable food Rising UK temperatures Source: Office for National Statistics – Opinions and Lifestyle Survey Percentage of adults selecting what they think (from a list of options) will directly affect them by 2030, Great Britain % @ONSfocus #economicforum slido #571430

20. (5) Mitigation (1 of 2) 23% of large businesses have a climate strategy, 17% an emissions target, & 8% monitor climate related risks 0 10 20 30 40 50 None of the above Not sure Has a nature or biodiversity strategy Monitors climate-related risks Has a net zero or greenhouse gas emissions target Has a climate change strategy Source: Office for National Statistics – Business Insights and Conditions Survey Environmental actions, large businesses that have not permanently stopped trading and have reported taking at least one action to protect the environment, UK, 21 March to 3 April 2022 % @ONSfocus #economicforum slido #571430

21. (5) Mitigation (2 of 2) Top two business actions to reduce emissions = switching to LED bulbs and adjusting heating & cooling systems 0 5 10 15 20 25 30 35 40 No actions have been taken to… Not sure Installing your own renewable… Introducing a cycle to work scheme Installing charging points Insulating your buildings Electrifying your vehicle fleet Installing a smart meter Going paperless Adjusting heating and cooling systems Switching to LED bulbs Source: Office for National Statistics – Business Insights and Conditions Survey Actions to reduce carbon emissions, businesses not permanently stopped trading, UK, 21 March to 3 April 2022 % @ONSfocus #economicforum slido #571430

22. (6) Adaptation Conifers accounted for 55% of new planting area in 2020-21 0 2 4 6 8 10 12 14 16 2016-17 2017-18 2018-19 2019-20 2020-21 Conifers Broadleaves Source: Forestry Statistics 2021 (Forest Research) from underlying statistics from the Forestry Commission, Forestry England, Scottish Forestry, Forestry and Land Scotland, Welsh Government, Forest Service, grant schemes New planting by forest type, UK Thousand hectares @ONSfocus #economicforum slido #571430

23. Quarterly residence emissions accounts • Framework to estimate UK residence basis emissions on a quarterly basis • More research to identify most appropriate predictors • User feedback will inform this work • Subject to this, publish late 2022 @ONSfocus #economicforum slido #571430

24. @ONSfocus #economicforum slido #571430 Beyond GDP – Inclusive Income Measures Richard Heys Deputy Chief Economist Productivity and Research Partnerships

25. What’s GDP doing ‘right’ & ‘wrong’? Definitive Timely Gross, not net – depreciation of assets excluded SNA increasingly dated, so arguably not a great measure of the market economy GDP is a good measure of the economy, but not of economic wellbeing Excludes key components beyond the economy Increasingly challenged by complicated ownership (e.g. atmosphere, data) Internally consistent methods and scope Explainable @ONSfocus slido #571430 #economicforum

26. Measures of progress • Different users want different progress measures • Single metric, e.g. GDP – simplicity • Wider dashboards, e.g. SDGs, NWB – complex • No agreement on a multi-dimensional single metric • Dasgupta Review – inclusive wealth, missing capitals • UN Secretary-General (2022) - ‘Our Common Agenda’ • Improved distributional data, multi-measure dashboards • New composite ‘single-index’ measures to complement GDP @ONSfocus slido #571430 #economicforum

27. National Accounts – economic activity within the production boundary Environmental Satellite Accounts – economic value of the natural world, including natural capitals Household Satellite Accounts – economic activity within the household without participating in economic markets Beyond GDP: The Recycling Principle Human Capital Satellite Accounts – economic value of human skills and knowledge Quality Adjusted Public Services Expanded Intangible Asset (IPPs) Definition Unpaid House- hold Services Natural Capital Flow of Benefits Human Capital Investment Free Digital Products Included in paper Included in paper Included in paper Partially included in paper Not included in paper Not included in paper @ONSfocus slido #571430 #economicforum

28. Beyond GDP: Complementary inclusive income measures The ‘Spectrum’ model from, adapted from Heys, Martin, and Mkandawire (2019) GDP Minus Current GDP Expanded GDP Welfare Minus Welfare Well-being Market sector GDP Gross Domestic Product (GDP) Gross Inclusive Income (GII) = GDP plus public sector quality adjustment and value added outside the current asset and production boundary Net Inclusive Income (NII) = GII minus the depreciation of relevant capitals (including those outside the current asset boundary) Democratic Inclusive Income (DII) = NII adjusted for democratic income / distribution Pluralistic dashboard capturing economic and social impacts on quality of life. @ONSfocus slido #571430 #economicforum

29. Progression through Spectrum from Market GVA to Net Inclusive Income (NII) UK, £billions, Current Prices, 2016 NII – relative component scales @ONSfocus slido #571430 #economicforum

30. Comparing NII, GDP & NNDI @ONSfocus slido #571430 #economicforum

31. Subnational Statistics Development, Office for National Statistics @ONSfocus #economicforum slido #571430 Experimental regional gross fixed capital formation (GFCF) estimates by asset type: 1997 to 2020 Laura Garcia Blasco and Michael Becker

32. What is capital? Why it matters? Capital Others Labour Productivity Inputs Final goods and services Living standards @ONSfocus slido #571430 #economicforum

33. Gross fixed capital formation (GFCF)  Measuring regional capital expenditure (gross fixed capital formation) is the first step towards measuring regional capital stocks  GFCF captures investment in fixed capital assets by both the public and private sectors o GFCF = Acquisitions less Disposals of produced assets  Used in the UK National Accounts expenditure approach to measure gross domestic product (GDP) @ONSfocus slido #571430 #economicforum

34. Context Clear requirement for development of more granular regional capital estimates  Improve on existing estimates  Intended to support delivery of the Government Statistical Service (GSS) subnational data strategy and support locally targeted policy making Please note that these are experimental statistics @ONSfocus slido #571430 #economicforum

35. Project scope In scope Out of scope Existing ONS data sources New data collection Publicly available data sources Unknown admin/commercial data Improved methods Fully developed methods Experimental improved estimates  More granular regional data (ITL3)  Specific assets breakdowns  Lower industry breakdowns (SIC section) A full production system, integrated with Regional Accounts @ONSfocus slido #571430 #economicforum

36. Regional granularity ITL1 • 12 regions Geographical boundaries being used are International Territory Level (ITL) which were formerly NUTS ITL3 • 179 regions ITL2 • 41 regions @ONSfocus slido #571430 #economicforum

37. Current ‘industry based’ approach Agriculture industry Retail industry ICT equipment Transport equipment Other machinery & equipment Buildings @ONSfocus slido #571430 #economicforum

38. Our ‘asset based’ approach Agriculture industry Retail industry ICT equipment Other machinery & equipment Buildings Transport equipment @ONSfocus slido #571430 #economicforum

39. Assets Asset descriptions Data sources Dwellings Barbour ABI; ONS construction statistics; Northern Ireland Statistics and Research Agency construction statistics; Department for Levelling Up, Housing and the Communities; Welsh Government; Scottish Government; Northern Ireland Government Other buildings and structures – roads Barbour ABI; ONS construction statistics; Northern Ireland Statistics and Research Agency road lengths data; Department for Infrastructure Northern Ireland road lengths data; ONS Annual Business Survey Other buildings and structures – general Barbour ABI; ONS construction statistics; Northern Ireland Statistics and Research Agency construction statistics; ONS Annual Business Survey Costs of ownership transfer on non-produced assets Barbour ABI; ONS construction statistics; Northern Ireland Statistics and Research Agency construction statistics; Department for Levelling Up, Housing and the Communities; Welsh Government; Scottish Government; Northern Ireland Government Other buildings and structures – land improvements Barbour ABI; ONS construction statistics; Northern Ireland Statistics and Research Agency construction statistics; ONS Annual Business Survey Ships VesselsValue; IHS-Markit Road transport vehicles Driver and Vehicle Licencing Agency; Labour Market Statistics Other transport equipment ONS Annual Business Survey Aircraft ONS Annual Business Survey ICT hardware and telecoms equipment ONS Annual Business Survey Other machinery and equipment ONS Annual Business Survey Cultivated assets Department for the Environment, Farming and Rural Affairs Weapons systems Ministry of Defence - regional armed forces personnel data Research and development ONS Business, Enterprise Research and Development survey Mineral exploration and evaluation ONS UK GFCF totals Computer software and databases - purchased software ONS Annual Business Survey Computer software and databases - own account software ONS Annual Survey of Hours and Earnings Entertainment, literary or artistic originals ONS Labour Market Statistics @ONSfocus slido #571430 #economicforum

40. Final output  annual – covering the period 1997 to 2020  UK International Territorial Level 3 (ITL3) regions  Standard Industrial Classification 2007 (SIC07) section level industry groups  high-level asset groups (buildings and structures, transport equipment, information and communications technology (ICT) equipment, other tangible assets, intangible assets)  constrained to national GFCF totals consistent with The Blue Book 2021 @ONSfocus slido #571430 #economicforum

41. Highlighted methods Dwellings  Using dwellings values from Barbour ABI and ONS construction statistics better reflects differences in regional house prices. Previously this was estimated exclusively using dwellings counts Buildings and structures  Using Barbour ABI data has allowed for specific microdata relating to the regional investment Own account software  Using ASHE micro data to estimate investment using professions involved in own account software development earnings to estimate regional investment @ONSfocus slido #571430 #economicforum

42. Output 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Published regional GFCF estimates, ITL1, 2000 to 2020 North East North West Yorkshire and The Humber East Midlands West Midlands East of England London South East South West Wales Scotland Northern Ireland 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Experimental regional GFCF estimates, ITL1, 1997 to 2020 North East North West Yorkshire and The Humber East Midlands West Midlands East of England London South East South West Wales Scotland Northern Ireland 2008 2008 £ million £ million @ONSfocus slido #571430 #economicforum

43. Data availability and disclosure Two main challenges emerged from the project which proved to be limiting factors Data availability  For the scope of the project, data of the necessary detail were not available for all years or all assets  This has left data gaps which have been filled either by modelling or using alternative sources Disclosure  Producing data at ITL3 and industry section increases the risk of disclosing individual businesses  This is an area that needs future consideration @ONSfocus slido #571430 #economicforum

44. Recommendations  Initial approach has produced a good starting point and provides an opportunity to be developed further  Further work on mitigating disclosure issues and improving regional industry allocation  Further engagement with data owners to make using alternative administrative data feasible @ONSfocus slido #571430 #economicforum

45. Thank you for listening If you’ve got any questions or want to get in touch please email us Subnational.Development@ONS.gov.uk Laura Garcia Blasco Laura.Garcia.Blasco@ons.gov.uk Michael Becker Michael.Becker@ons.gov.uk Link to the publication Experimental regional gross fixed capital formation (GFCF) estimates by asset type: 1997 to 2020 - Office for National Statistics (ons.gov.uk) @ONSfocus slido #571430 #economicforum

46. Closing remarks Ed Palmer Deputy Chief Economist Office for National Statistics @ONSfocus #economicforum slido #571430

47. Forthcoming ONS economic analysis 19 May 2022 – Job changers and stayers, understanding earnings, UK: April 2012 to April 2021 24 May 2022 – GDP and events in history: how the COVID-19 pandemic shocked the UK economy 26 May 2022 – Long-term international migration, provisional: year ending June 2021 27 May 2022 – Health benefits of recreation, natural capital, UK: 2022 30 May 2022 – Youth unemployment by socioeconomic background, UK: 2014 to 2021 31 May 2022 – Quarterly regional labour productivity, gross value added, hours and jobs 10 June 2022 – The cost of living, current and upcoming work: June 2022 All information on upcoming analysis can be found via the ONS website @ONSfocus slido #571430 #economicforum

48. ONS Consultations ONS open participation activities: Research and Development (R&D) survey The ONS run a suite of Research and Development (R&D) surveys. Each of these annual surveys are used to measure R&D activity in the UK. Outputs from each are combined with administrative data that measures R&D activity for the higher education sector to compile the ONS’ Gross Domestic Expenditure on R&D release. Headline statistics from this release are used to measure progress towards government set targets linked to R&D. We want to ensure that our data meets the needs of the people who use it. To achieve this, we are conducting a review of our applied methodology, exploring alternative data sources and reviewing our R&D questionnaires. Please support to this important work by responding here. The survey is live until 2 June 2022. @ONSfocus #economicforum slido #571430

49. ONS User Survey ONS open participation activities: Labour Market Statistics User Engagement The ONS is undertaking an ambitious transformation programme to improve labour market statistics through survey transformation and increased use of data from administrative and other sources. The main survey that provides labour market information from an individual and household perspective is the Labour Force Survey (LFS). With recent developments, including the addition of the ability to respond by telephone, the ONS is now in a position to begin moving towards incorporating the transformed LFS data into the regular labour market data releases. Please support to this important work by responding here. The survey is live until 29 June 2022 More information, including on how to respond, can be found on our consultation and stakeholder participation hub: https://consultations.ons.gov.uk @ONSfocus #economicforum slido #571430

50. ONS Subnational Workplan Launched today in response to the GSS subnational data strategy New or improved subnational outputs and initiatives planned over the next 18 months Workstreams covering a wide range of themes, from the economy to population, migration and Census With a focus on UK-wide coverage, where possible, enabled by solid collaboration with the Devolved Administrations @ONSfocus #economicforum slido #571430

51. Dates for your diary 23 May 2022 – Global Trade and Investment User Event, London 24 May 2022 – Regional Economic Forum, University of Strathclyde, Glasgow 25-27 May 2022 – ESCoE Conference on Economic Measurement – University of Strathclyde, Glasgow 15 June 2022 – Economic Data Science Seminar Series - Alexandre Judes 20 June 2022 – ONS Economic Forum Further details on the above events will be published at ons.gov.uk/economicevents @ONSfocus #economicforum slido #571430

52. Thank you for attending the Economic Forum You can keep up to date on all up coming 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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