ONS Economic Forum - 10 October 2022

Chief Economist and Director of
Macroeconomic Statistics and Analysis
Office for National Statistics
@GrantFitzner
Economic Forum
10 October 2022
Chair – Grant Fitzner
@ONSfocus #economicforum

Agenda
10:00 – 10:05 Introduction – Grant Fitzner (Chair), Chief Economist, Office for National Statistics
10:05 – 10:10 Welcome – Fergal Shortall, Director of Monetary Analysis, Bank of England
10:10 – 10:30 State of the UK Economy – Sam Beckett, Second Permanent Secretary, Office for
National Statistics
10:30 – 10:50 New estimates of core inflation – Graeme Chamberlin, Office for National Statistics
10:50 – 11:10 Q&A
11:10 – 11:25 Refreshment break
10:25 – 11:45 Annual National Accounts 2022 and the impact on GDP– Niamh McAuley, Office for
National Statistics
11:45 – 12:05 International Trade Flows of G7 Economies – Marilyn Thomas, Office for National
Statistics
12:05 – 12:25 Q&A
12:25 – 12:30 Closing remarks – Grant Fitzner, Chief Economist, Office for National Statistics

Director of Monetary Analysis
Bank of England
Welcome
Fergal Shortall

Second Permanent Secretary
Joint Head of the Government Economic
Service, Office for National Statistics
State of the UK Economy
October 2022
Sam Beckett

Inflationary pressures are becoming more broad based
0%
1%
2%
3%
4%
5%
May 21 Aug 21 Nov 21 Feb 22 May 22 Aug 22
Inflation Expectations
1-year 5-year
Source: ONS – Consumer Prices Index Source: Bank of England – Inflation Attitudes Survey
-2%
0%
2%
4%
6%
8%
10%
1990 1995 2000 2005 2010 2015 2020
CPI vs Core CPI, 12mth %change
CPI Core CPI

The outlook for the public finances are uncertain
0
1
2
3
4
5
6
7
8
2022-23 2023-24 2024-25 2025-26 2026-27
Per
cent
of
national
income
Public Sector Net Borrowing forecast with and
without Energy Price Guarantee (EPG)
OBR March forecast IFS/citi excluding EPG IFS/citi: EPG
60%
65%
70%
75%
80%
85%
90%
95%
100%
2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
Government debt forecast as a percentage of
national income
OBR March forecast IFS/citi
Source: Office for Budget Responsibility and Institute for
Fiscal Studies
Source: Office for Budget Responsibility and Institute for
Fiscal Studies

Sterling has weakened against the dollar and gilt
yields have increased
Source: Bank of England
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
9/7/2020 3/7/2021 9/7/2021 3/7/2022 9/7/2022
Euro and GBP exchange rates against USD
EUR GBP
Source: Bank of England
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
0 5 10
Per
cent
UK gilts spot curves, Jan to Sep 2022
04 Jan 22 01 Apr 22 01 Jul 22 30 Sep 22

The UK is a net importer of fuels and other goods
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2000 2005 2010 2015 2020
Current Account, % GDP
-1.2%
-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
2017 2018 2019 2020 2021 2022
Net trade of oil and other fuels, %GDP
Oil Other fuels
Source: ONS – Balance of Payments
Source: ONS – Balance of Payments

Real disposable incomes are being squeezed
Source: ONS – Quarterly Sector Accounts
0%
5%
10%
15%
20%
25%
2000 2005 2010 2015 2020
Savings Ratio
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2017 2018 2019 2020 2021 2022
Real household disposable income, quarter
on quarter change
Source: ONS – Quarterly Sector Accounts

Economic inactivity has risen with long-term sickness
a particular driver
-400
-200
0
200
400
600
800
2020 2021 2022
vs
Oct-Dec
2019
Economic Inactivity
Student Looking after family / home
Temporary sick Long-term sick
Discouraged workers Retired
Other Economically inactive
0% 10% 20% 30% 40% 50% 60%
To improve my physical health
For a well-paid job
If my caring responsibilities change
To improve my mental health
Changes to my cost of living
For a job that suited my other responsibilities or
lifestyle
For a job that suited my skills and experience
For the social company or a job I would enjoy
For the money
Reasons over 50s would consider re-entering
workforce
50 to 54 55 to 59 60 to 65
Source: ONS – Over 50s Lifestyle Survey
Source: ONS – Labour markets, July 2022

Growth is expected to fall back in 2023
Source: OECD – Interim economic outlook
Source: OECD – Interim economic outlook
0%
1%
2%
3%
4%
G20 United Kingdom United States Euro area
Real GDP growth projections
2022 2023
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
G20 United Kingdom United States Euro area
Inflation projections, annual average
2022 2023

Conclusions
• Inflationary pressures continue to impact upon the economy
and public finances
• Higher energy prices are leading to the UK being more reliant
on external financing for the time being
• OECD forecast GDP growth to fall back for the UK and other
advanced economies in 2023

Economist
Macroeconomic and Environment
Statistics and Analysis
New estimates of
core inflation
Graeme Chamberlin

Headline inflation at a 30-year high
-2
0
2
4
6
8
10
12
14
16
18
20
22
1950
JAN
1953
JAN
1956
JAN
1959
JAN
1962
JAN
1965
JAN
1968
JAN
1971
JAN
1974
JAN
1977
JAN
1980
JAN
1983
JAN
1986
JAN
1989
JAN
1992
JAN
1995
JAN
1998
JAN
2001
JAN
2004
JAN
2007
JAN
2010
JAN
2013
JAN
2016
JAN
2019
JAN
2022
JAN
Consumer price index including housing costs (CPIH), 12-month % change
%
August 2022
8.6%
Sources: Consumer price inflation and Consumer price inflation, historical data, (1950-1988)

What is core inflation?
Question: To what extent to which movements in CPIH inflation reflect:
• the effects of volatile and less-persistent price changes which provide less
information about inflation in the medium term; and
• the effects of a change in underlying (core) inflationary pressures?
“The name of the game then was distinguishing the signal from the noise,
which was often difficult. The key question on my mind was typically what part
of each monthly observation on inflation is durable and what part is fleeting?”
(Alan Blinder, 1997)

How to measure core inflation
• A plethora of techniques available – but all based on the same principle of
identifying and down-weighting the more volatile components of the price
index.
• Two approaches discussed today (the old and the new):
1. Exclusion-based estimates: the process of removing certain classes of
goods and services from the price index
2. Trimmed mean estimates: the process of removing each month a certain
proportion from the top and the bottom of the distribution of prices in the
index

Exclusion-based measures of core inflation
Special aggregates 12-m inflation (%) CPIH ex. (%)
Energy 51.8 6.3
Energy, food, alcoholic beverages & tobacco 22.4 5.6
Energy & unprocessed food 34.4 6.1
Seasonal food 11.9 8.5
Energy & seasonal food 38.8 6.2
Alcoholic beverages & tobacco 5.5 8.7
Liquid fuels, vehicle fuels & lubricants 34.1 8.0
Owner occupiers' housing costs and council tax and rates 3.4 10.0
Education, health & social protection 3.9 8.9
• ONS publishes 12 CPIH exclusion-based measures each month
• The annual rate of CPIH inflation in August 2022 was 8.6%

‘Core’ inflation – CPIH ex. F,E,A & T
-5
0
5
10
15
20
25
1989
JAN
1990
JAN
1991
JAN
1992
JAN
1993
JAN
1994
JAN
1995
JAN
1996
JAN
1997
JAN
1998
JAN
1999
JAN
2000
JAN
2001
JAN
2002
JAN
2003
JAN
2004
JAN
2005
JAN
2006
JAN
2007
JAN
2008
JAN
2009
JAN
2010
JAN
2011
JAN
2012
JAN
2013
JAN
2014
JAN
2015
JAN
2016
JAN
2017
JAN
2018
JAN
2019
JAN
2020
JAN
2021
JAN
2022
JAN
CPIH (all items) F,E,A & T CPIH (all items) ex. F,E,A & T
Source: Consumer price inflation
%
8.6%
5.6%
22.4%

Why trim the mean?
1. Exclusion-based estimates – a blanket approach to ‘what’s in’ and ‘what’s
out’.
2. The distribution of price changes in the CPIH is leptokurtic
• Kurtosis: There are ‘fat tails’ – very large month-on-month price
movements relative to the average are relatively common
Kurtosis measure CPIH – 87 classes* Value under normality
Standard 4th
moment 41.75 3.00
Moors 3.57 1.23
Hogg 5.07 2.59
Crow & Siddiqui 14.07 2.91
*An average of monthly kurtosis measures between January 2001 and August 2022

Trimmed mean and median CPIH inflation
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2002
JAN
2003
JAN
2004
JAN
2005
JAN
2006
JAN
2007
JAN
2008
JAN
2009
JAN
2010
JAN
2011
JAN
2012
JAN
2013
JAN
2014
JAN
2015
JAN
2016
JAN
2017
JAN
2018
JAN
2019
JAN
2020
JAN
2021
JAN
2022
JAN
CPIH 15% trim Median
%
8.6%
5.4%
4.0%

Most- and least- trimmed classes (15%, 2002-22)
CPIH Class % of months
trimmed
07.3.3 Passenger transport by air 97.7
07.3.4 Passenger transport by sea and inland
waterway
92.3
04.5.3 Liquid fuels 88.1
05.1.1 Furniture and furnishings 85.0
09.1.4 Recording media 80.8
05.2 Household textiles 79.6
09.5.1 Books 78.1
09.1.2 Photographic, cinematographic and
optical equipment
76.9
09.1.3 Data processing equipment 76.5
02.1.1 Spirits 73.8
CPIH Class % of months
trimmed
04.2 Owner occupiers' housing costs 0.0
11.1.1 Restaurants & cafes 1.2
04.1 Actual rentals for housing 5.0
12.1.1 Hairdressing and personal grooming
establishments
6.9
04.4.1 Water supply 7.7
04.9 Council tax and rates 8.1
07.1.1A New cars 8.1
04.3.2 Services for maintenance and repair 8.5
04.4.3 Sewerage collection 8.5
05.3.3 Repair of household appliances 10.4

Comparing ‘core’ inflation estimates
0
1
2
3
4
5
6
7
8
9
2002
JAN
2003
JAN
2004
JAN
2005
JAN
2006
JAN
2007
JAN
2008
JAN
2009
JAN
2010
JAN
2011
JAN
2012
JAN
2013
JAN
2014
JAN
2015
JAN
2016
JAN
2017
JAN
2018
JAN
2019
JAN
2020
JAN
2021
JAN
2022
JAN
CPIH CPIH ex. F,E,A & T 15% trimmed mean
8.6%
5.6%
5.4%
%

What about CPI inflation?
-2
0
2
4
6
8
10
2002
JAN
2003
JAN
2004
JAN
2005
JAN
2006
JAN
2007
JAN
2008
JAN
2009
JAN
2010
JAN
2011
JAN
2012
JAN
2013
JAN
2014
JAN
2015
JAN
2016
JAN
2017
JAN
2018
JAN
2019
JAN
2020
JAN
2021
JAN
2022
JAN
CPI CPI ex. F,E,A & T 15% trimmed mean
9.9%
Consumer price index (CPI), 12-month % change
6.5%
6.3%
%

Conclusions
• Core inflation is an estimate of the underlying rate of inflation in an economy
that puts lower weight on items subject to erratic and seasonal price
movements
• Trimmed-mean approaches are easy to produce, simple to communicate to
users and will not be revised providing the underlying data are not revised.
• Trimming the top and bottom 15% produces a lower rate of annual inflation of
5.4% in August 2022
• But the pickup over the last year indicates broader inflationary pressures.
• Prices are also growing faster for the classes of goods and services towards the
middle of the distribution of price changes and not just at the top end

GDP Coordination
National Accounts Coordination Division
Economic Statistics Production and
Analysis Directorate
Annual National
Accounts 2022 and the
impact on GDP
Niamh McAuley

Revisions to GDP have meant a sharper contraction in 2020 followed by
a stronger recovery through the coronavirus pandemic

Timely estimates of GDP
• Monthly GDP: based on the output approach, is published around 40 days after
the end of the reference month.
• First Quarterly Estimate: published around six weeks after the end of the
reference quarter containing output, expenditure and income data.
• Quarterly National Accounts: published around 13 weeks after the end of the
reference quarter and includes a full national accounts dataset with increased
data content.
• Annual Bluebook (coherent annual estimates): published usually in July or
October each year. The Blue Book is an annual estimate, however, it is not the
first annual estimate that we make. It is the point of annual reconciliation of
data sources.

What changes occur between Quarterly National
Accounts and our Annual National Accounts?
1. Updated data (e.g. annual surveys)
2. New better methods introduced and improvement to
data sources
3. Complete data (e.g. intermediate consumption)
4. Supply and use balancing in current prices and volume
at the detailed 112 product and industry level
5. Deflation by component and product rather than high
level industry

The importance of intermediation consumption
• Gross Value Added = Output – Intermediate
Consumption
Quarterly National Accounts Annual National Accounts
Data for 2020 estimated using
turnover, proxied for gross value
added
Intermediate consumption is
assumed fixed
Data for 2020 is now based on
estimates of actual output and
intermediate consumption to
derive gross value added

OFFICIAL SENSITIVE
Impact on quarterly average GDP CVM growth:
2020 revision
New estimate (%) Previous
publication (%)
Revision (percentage points)
2020Q1 -2.6 -2.5 -0.1
2020Q2 -21.0 -19.4 -1.6
2020Q3 16.6 17.6 -1.0
2020Q4 1.2 1.5 -0.3
Annual growth in 2020 is now estimated to have fallen by 11%, revised down from a previously
published 9.3% fall

The four types of changes and contributions in
2020 revisions
Type of change Selected industries Approximate
contributions to revision
Annual output data replacing
quarterly estimates
Car manufacturing,
Pharmaceutical manufacturing
+0.04 percentage
points (pharma)
+0.04 pp (cars)
Balancing vs expenditure and income Pharmaceutical manufacturing
Difference in approach with annual
estimates
(eg explicit intermediate consumption)
Health,
Transport sector,
Public administration
-1.8 pp (health)
-0.5 pp (transport)
-0.4 pp (public admin)
Deflation, reconciliation and volume
measures
Manufacturing,
Retail and wholesale
+0.9 pp (manufacturing)
-1.0 pp (retail & wholesale)
Total revision in 2020 -1.7 percent

Annual revisions to contributions: services
sector

Health GVA is lower due to separate estimates
of output and intermediate consumption

Distribution changes are explained by lower volumes
of wholesale & retail output

The production sector

Revisions to contributions: manufacturing
sector

What did the new 2020 levels mean for 2022 Q1
pre-pandemic levels?
• GDP in 2020 is now 1.7pp lower than previously published
• If we were to naively link on the existing 2021/2022 growth rates, then GDP in
2022 Q1 would be 1.1% below pre-pandemic levels (previously published
at 0.9% above)
• However, this was assuming all else equal, but 2021/2022 has also seen:
• Updated survey responses from the Monthly Business survey (stored revisions and late responders)
• Use of administrative VAT data for full 2021 year
• Updated external returns
• New method introduced to utilise government gross value added (GVA) in our estimates of health
and public admin to improve 2021/2022 series and reduce future supply use revisions
• Reassessment of all our 2021/2022 balancing and coherence adjustments

Real GDP- quarter on quarter growth

Impact on pre-pandemic recovery
2018 2019 2020 2021
New estimate 1.7 1.6 -11 7.5
Previous
publication
1.7 1.7 -9.3 7.4

Pre-pandemic recovery – GDP v Output ‘GDP’
2022Q2 v 2019Q4 Now Previously
Average QGDP -0.2 +0.6
Quarterly GDP O +0.2 +0.9
2022 Jun v 2020
Feb
Monthly GDP O +0.3 +0.9
• In the UK, we produce estimates of gross
domestic product (GDP) on a monthly and
quarterly basis, which gives two estimates of
where the UK economy is relative to its pre-
coronavirus pandemic level.
• Our estimates of monthly GDP are based only
on the output approach to GDP, specifically the
contribution of each industry or producer by
using gross value added (GVA) as a proxy
indicator.
• In comparison, our estimates of quarterly GDP
reflect the average of the three measurement
approaches – output, income and expenditure.

Total services
Growth (%) 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2
New estimates -1.7 8.0 2.4 2.2 0.8 0.2
Previously
published
-1.6 6.5 1.2 1.5 0.6 -0.4

Services pre-pandemic comparisons

Summing up
• The annual national accounts has made significant improvements in
measuring several aspects of the national accounts.
• Annual volume GDP growth in 2020 is revised down 1.7 percentage points
to a 11.0% fall
• These 2020 revisions are mainly because we have richer data from our
annual surveys and certain administrative data, so we are now able to
measure costs incurred by businesses (intermediate consumption) directly
and can adjust for prices (deflation) at a far more detail level.
• As a result of a lower 2020 base as well as implementing revisions to 2021/
2022, monthly GDP is now estimated to be 0.3% below pre-pandemic
levels, compared to previously 0.9% above

Further reading
• Quarterly national accounts:
https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/quarter
lynationalaccounts/apriltojune2022
• Impact of Blue book changes:
https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/impacto
fbluebook2022changesongrossdomesticproduct/2022-08-22
• Measuring monthly & quarterly GDP:
https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/measuri
ngmonthlyandquarterlyukgrossdomesticproductduringthecoronaviruscovid1
9pandemic/2021-11-11

International Trade
Flows of G7 Economies
Marilyn Thomas

Background
This presentation covers the UK’s trade performance, including
its trade openness relative to other G7 economies, as well as
recent price and volume movements in international trade flows
In terms of background, structural changes in the economy have
had impacts on global trade flows in recent years due to:
• the UK’s EU Exit
• the Coronavirus (COVID-19) pandemic
• higher energy and commodity prices

Methodology
The analysis is based on data published by ONS, the OECD & UN
Comtrade with a focus on:
• The relative change in trade openness of the G7 countries in
recent years
• The impacts of EU exit and the pandemic on the level of goods
compared the level of services trade – the ‘between’ effect
• The impacts of EU exit and the pandemic on the composition
of trade flows – the ‘within’ effect
• The impacts of higher energy and commodity prices

Figure 1: There is evidence that the UK has become relatively less open to
international trade in recent years, and has experienced a later rebound following the
pandemic than other G7 countries
Trade openness of the UK and other G7 economies, Quarter 1 2010 to Quarter 2 2022.
Source: Organisation for e openness is measured as the sum of a country’s exports and
Economic Co-operation and Development

Figure 2: The UK has seen relatively more volatility in its goods trade in recent years
than other G7 countries
Exports and imports of goods volumes, G7, Quarter 1 2016 to Quarter 2 2022
Source: Organisation for Economic Co-operation and Development

Figure 3: Trade in services by the G7 economies has been more adversely impacted
than trade in goods by the coronavirus pandemic
Exports and imports of services, G7, Quarter 1 2016 to Quarter 2 2022

Table 1: The USA, Japan and Italy experience the largest changes in the composition
of exports, while Canada experiences the largest change in imports from 2019 to 2021
Exports and imports of goods as a percentage of total exports and imports, G7, 2019 to 2021

Figure 4: Trade in goods experienced a sizeable change in commodity structure due to
shifts in demand caused by the pandemic
Annual change in the trade of medicinal and pharmaceutical products (SITC 54), 2019 to
2020; and 2020 to 2021. Source: UN Comtrade
-15% -10% -5% 0% 5% 10% 15% 20%
Canada
France
Germany
Italy
Japan
United Kingdom
USA
Exports Imports
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Canada
France
Germany
Italy
Japan
United Kingdom
USA
Exports Imports

Figure 5: All net importers of oil and gas experience much larger implied price
movements in their imports than in their exports in the year to Quarter 2 2022
Percentage change in the implied price of imports and exports between Quarter 2 2021 and
Quarter 2 2022. Source: Organisation for Economic Co-operation and Development
0%
5%
10%
15%
20%
25%
30%
35%
Canada France Germany Italy Japan United Kingdom United States
Per
cent
Imports Exports

Table 2: Higher rates of inflation have fed through to current price trade movements
Percentage change in G7 trade flows between the second half of 2021 and the first half of
2022
Current Price Volume
Exports (%) Imports (%) Exports (%) Imports (%)
Canada 14.8% 11.4% 0.5% 5.1%
France 11.1% 15.4% 3.6% 4.1%
Germany 7.5% 13.5% 0.7% 3.1%
Italy 12.8% 22.2% 6.1% 9.5%
Japan 9.4% 18.0% 1.7% 4.0%
UK 10.0% 21.8% 2.0% 11%
USA 10.7% 12.9% 3.1% 6.8%

Figure 6: The UK, Germany and Japan experienced large declines in trade balance in
the first quarter of 2022, reflecting their positions as net importers of energy
G7 trade balances as a percentage of GDP (current prices), Q1 2021 to Q1 2022

Summing up
 UK’s level of trade openness as a % GDP has fallen further than other G7
countries in recent years, and seen a later rebound in trade openness
 EU Exit has been accompanied by more volatility in UK goods trade than
other G7 economies - survey evidence points to there being heightened
uncertainty and some border frictions
 Trade in services has been more adversely affected by the coronavirus
pandemic than trade in goods due to travel restrictions and border closures
 There has been a change in the composition of goods trade, reflecting the
shift in demand for products due to the pandemic, including PPE and
pharmaceuticals, and household electrical and non-electrical equipment
 Recent energy and commodity price movements had a significant impact on
the current price trade positions of some G7 countries, depending on
whether countries are net exporters or net importers of these products

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

Forthcoming ONS economic analysis
10 October 2022 – Recent trends in the international trade flows of G7 countries
11 October 2022 – Labour Market Theme Day
12 October 2022 – GDP/Trade Theme Day
13 October 2022 – Regional gross disposable household income, UK : 1997-2020
19 October 2022 – Prices Theme Day
20 October 2022 – Workless households for regions across the UK: 2021
31 October 2022 – UK National Accounts, The Blue Book: 2022
31 October 2022 – UK Balance of Payments, The Pink Book: 2022
All information on upcoming analysis can be found via the ONS website

Dates for your diary
24 October 2022 – ONS Regional Economic Forum, Birmingham
25 October 2022 – Understanding the cost of living through statistics, London
ESCoE Economic Measurement webinar series:
• 20 October 2022 - Anywhere Jobs: Reshaping the Geography of Work
• 3 November 2022 - The Pros and Cons of Consumption- and Income-Based Measures of
Economic Well-being
• 1 December 2022 – Efficient Industrial Policy for Innovation: Standing on the Shoulders of
Hidden Giants
• 15 December 2022 – Measuring Subjective Wellbeing: Evidence from the UK Household
Longitudinal Study
Further details on the above event and any upcoming events will be published at
ons.gov.uk/economicevents

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

ONS Economic Forum - 10 October 2022

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