Left Foot Forward » ONS

Food and fuel prices will be key to inflation in the year ahead

James Plunkett — Tue, 17 Jan 2012 13:43:17 +0000

Today’s ONS inflation statistics presage what will be one of the few positive economic stories this year, writes James Plunkett, secretary to the Resolution Foundation’s Commission on Living Standards

Backed by strong discounting from retailers, RPI fell from 5.2 per cent in November to 4.8 per cent in December, while CPI fell from 4.8 per cent to 4.2 per cent, its largest one month drop since December 2008.

That of course means inflation remains at more than twice the level of its Bank of England target. Nonetheless, future months are likely to see further falls, bringing welcome relief to real household disposable income.

Yet, as I’ve argued before, it’s increasingly important to dig beneath the inflation stats to see what’s driving the overall averages. As a recent report (pdf) from Donald Hirsh from the Resolution Foundation confirmed, the pattern of inflation has shifted dramatically in the past ten years with corrosive implications for living standards.

As Figure 1 from the report shows, the 1990s saw key household costs like food and fuel grow more slowly than overall inflation.

In the 2000s this picture looked very different with almost all of the major costs borne by low to middle income households rising far faster than headline inflation.

Figure 1:

So what do today’s inflation stats say about different categories of goods? The story is pretty positive. As Figure 2 shows, food inflation is down less than overall inflation but it remains below the headline rate.

Inflation in household fuel and transport costs have both fallen significantly, though both remain high.

Figure 2:

In the coming months, as inflation falls, we need to keep an eye on these figures. Although the headline inflation rate remains important, price cuts from major energy companies and food retailers will also be key to whether lower inflation really eases the squeeze.

We’ve got the wrong sort of growth – a fall in real GDP now looks more likely

Tony Dolphin — Thu, 24 Nov 2011 11:29:00 +0000

If anyone was inclined to get excited about the news real GDP in the UK increased 0.5 per cent in the third quarter of this year – and few were – today’s release from the ONS (pdf) detailing the composition of that growth will make them think again.

In the third quarter, consumer spending was unchanged from the previous quarter, business investment was down 0.2 per cent and exports were 1.0 per cent lower. No sign here of the rebalancing of the economy the government is hoping for, though the fall in exports does provide some cover for the government to blame disappointing growth in the UK on the eurozone crisis.

Instead, growth was driven by a 0.9 per cent increase in government spending, which is now up 2.9 per cent over the last year, and by a 0.7 per cent contribution from inventory building, which went from £452 million in the second quarter to £2,907 million in the third.

If this inventory building was voluntary, then there is nothing to worry about. More likely, though, given the recent weakness in final demand in the UK economy – and in our main export markets – it was involuntary. Producers and retailers were probably expecting higher sales, and when these failed to materialise they were left with unwanted stock.

If this interpretation is right, then the outlook for the final quarter of the year is gloomy.

Business and consumer confidence indicators and anecdotal evidence from the High Street (with Arcadia announcing today it is planning to close 260 stores) suggests final demand will remain weak. And producers and retailers are likely to cut back production in an effort to reduce inventory levels.

A fall in real GDP now looks the most likely outcome.

Fast spending cuts push economy from fastest quarterly growth for a decade towards zero

Cormac Hollingsworth — Tue, 01 Nov 2011 10:13:07 +0000

Today’s GDP growth figures (pdf) are the latest evidence the coalition’s rapid spending cuts have pushed the UK economy from the one of the two equally fastest quarters of growth for a decade towards zero, writes Cormac Hollingsworth

A year ago, the fastest growth since 1999 cut the deficit by £10.8 billion, that’s on top of the £2bn of the VAT rise. It is possible that St Paul’s clearing out the tents is not some craven capitulation but an expectation that certain other political constituencies will start praying very hard for a Labour-like growth miracle.

Graph 1:

After all, in Q2 and Q3 2010 the UK economy fourth quarter growth exceeded the 2.1% average since 1998. Since then the economy has been on a downward track to today’s value that over the past four quarters from Q3 2010 – Q3 2011, the economy has growth by only 0.5%.

The slow growth of the current year according to the city forecasts is expected to increase the deficit £13bn. (calculated from the current Treasury consensus forecast for public borrowing of £129.8bn).

The problem for the coalition is that low growth increases borrowing over the life of the parliament.

So while the OBR forecast in June 2010 that borrowing would be £89 billion in 2012-13, the consensus forecast is for that to be £113.6bn. The outlook is bleak; expect lots of Tories at prayer in St Paul’s very, very soon.

TaxPayers’ Alliance make a mockery of themselves by denying wellbeing evidence

Guest — Thu, 28 Jul 2011 15:07:06 +0000

Jules Peck works with companies on Flourishing Enterprise Flourishing Enterprise strategic innovation, is a trustee at think tanks the new economics foundation and ResPublica and chair of Edelman’s Sustainability Group; Jules is the co-author of Citizen Renaissance and was the Director of David Cameron’s Quality of Life Review

We’ve seen mixed reviews for the recent (ONS) announcements on options for a national wellbeing index to run alongside GDP.

In support for these revolutionary new measures of progress we have an unlikely series of bedfellows, including the prime minister; progressive business leaders like Ian Cheshire and Ian Marchant CEOs of B&Q Kingfisher and SSE; Sir Gus O’Donnell, head of the civil service; the Treasury; NGOs and leading think tanks like the New Economics Foundation (nef).

And the naysayers? Well there is the TaxPayers’ Alliance and Guido Fawkes… hardly credible voices of progress.

This ONS review comes at a time where, sadly, politics in Britain is largely failing to recognise the need for a radical updating of capitalism. The Right blame the state for ‘breaking society’; the Left blamed laissez-faire capitalism, with little idea of an alternative, and then encouraged it anyway. We need to admit ‘it’s the market stupid’ – our economics are what lie at the heart of our planetary, monetary and wellbeing malaises.

At the heart of this is a need for a new macroeconomics with people and planet not wealth and growth as its focus. The field of Wellbeing Economics is fast moving and game-changing, it is at the vanguard of debate about the updating of values, capitalism and macro-economics.

It is where the ecological economics of Professor Herman Daly meets the work of Nobel Laureate welfare economist Amartya Sen, the positive psychology of Professor Martin Seligman, and that of Nobel Laureate Daniel Kahneman’s hedonic psychology and behavioural economics.

Similarly, in the UK, Professor Tim Jackson is breaking new ground around Prosperity Without Growth and taking a focus on ‘wellbeing as prosperity’ to its obvious conclusions around challenging our growth obsessed economics 1.0. So the space ONS is venturing into, at the behest of the prime minister, is brave and potentially radical.

Because of this, a new economics is emerging that questions the meaning of prosperity and posits that instead of wealth and growth we ought instead to focus on the growth of wellbeing and flourishing.

Such thinking comes at a time when significant proportions of society, called by some cultural-creatives, are once again tuning in to Thoreau’s thinking in Walden that:

“A man is rich in proportion to the number of things he can do without.”

A number of politicians, interestingly many from the new-right, are tuning in to these new cultural norms and framing their new politics in terms of wellbeing and community rather than wealth and individualism. President Sarkozy asked Joseph Stiglitz to lead a policy review on these issues and it was as a result of David Cameron’s own Quality of Life Review, which I was Director of, that he set the Office of National Statistics the task of measuring and developing policy around wellbeing.

It is good to see the prime minister has not taken his foot off the accelerator despite the recession, which could have made him fearful of continuing to push this agenda. And Mr Cameron clearly does support this agenda. Although wellbeing has not been the subject of any recent speeches I expect he will return to it soon, and just back in November last year he vociferously supported the ongoing ONS work.

The recent results from the ONS national survey support years of research by academics, Nobel Laureates and think tanks like nef. What really matters to people is not money per se but relationships, time spent with friends and family, time spent in nature and a healthy environment, security and flow in work, equality and good health.

The TaxPayers’ Alliance merely makes a mockery of citizens as well as themselves by denying this evidence.

With the Treasury and the bible of the civil service, the Green Book, now taking wellbeing seriously as an additional lens for policy, it looks like we are entering an exciting new age which will pay dividends for both people and planet.

So next time you hear someone sneer about things like the clumsy ‘Big Society’ narrative just remember, it was Mr Cameron not Mr Blair or Mr Brown who had the guts to start to update our economics in what could be the beginning of a revolution in the way we live. Time now for the left to catch up with this debate.

The squeeze intensifies

Tony Dolphin — Tue, 28 Jun 2011 13:18:15 +0000

It has become commonplace to hear how the combination of high inflation, low wage growth and tax increases will severely squeeze household finances in the UK. Today, the Office for National Statistics provided some hard evidence (pdf) on the extent of this squeeze.

It reported that households’ real disposable incomes – total income from all sources less taxes and national insurance contributions, after allowing for inflation – fell by 0.8 per cent in the first quarter of 2011 and by 2.7 per cent over the last year. This annual fall is the largest recorded in the UK since 1977.

Real disposable income is basically a measure of households’ ability to increase their spending without reducing their saving or increasing their borrowing. So it is no surprise that household spending also fell over the last year, by 0.5 per cent in real terms.

The fall would have been greater, but for the saving ratio declining from 6.2 to 4.6 per cent. Households have chosen to save less in an attempt to maintain their living standards.

Although wage growth – at around 2 per cent – is low by historical standards, sterling’s decline in 2008 and 2009 may still be having a lingering effect on some import prices and the chancellor made the squeeze worse by increasing the standard rate of VAT from 17.5 to 20 per cent in January, high food and fuel prices are the main problem. They have boosted inflation, as measured by the consumer spending deflator, well over 5 per cent.

To the extent that these higher prices are the result of the strength of demand in emerging economies, there is little the UK can do about them.

The Monetary Policy Committee is torn between the need to raise interest rates to prevent higher inflation expectations becoming locked in and the knowledge that to do so now would add to the squeeze on household finances as mortgage payment went up.

For now it is rightly giving more weight to the negative effect of higher interest rates on demand and holding them at the record low level of 0.5 per cent.

If food and energy prices fall back later in the year and the squeeze on households’ spending power ends, then the MPC will claim it was right not to act. However, if they do not, and the squeeze persists, then the MPC’s dilemma will intensify.

Public borrowing still a little ahead of expectations

Tony Dolphin — Tue, 21 Jun 2011 10:50:43 +0000

It is early days yet, but the chancellor does not appear to making quite as much progress as he hoped in reducing public sector borrowing. The latest figures (pdf), released by the Office for National Statistics today, show public sector net borrowing (excluding the effects of financial interventions) was £17.4 billion in May, compared to £18.5 billion in May 2010.

This decline is good news, but not quite good enough to reverse April’s very bad figures. As a result, borrowing in the first two months of the financial year was £27.4 billion, £1.5 billion higher than in the same two months of 2010/11.

However, receipts in April were boosted by £3.5 billion thanks to the bank payroll tax. After adjusting for this one-off tax, borrowing in the current year is £2 billion lower than last year. This still suggests that borrowing is running a little ahead of where is should be if the full-year outturn is to be in line with expectations. At the time of the March Budget, the Office for Budget Responsibility forecast a drop in borrowing from £143.2 billion in 2010/11 to £122 billion in 2011/12. But the overshoot is not a large one – and the figures are volatile from month-to-month.

Some commentators have blamed weak growth in the economy for the overshoot in public borrowing, but this explanation is too simplistic. Both receipts and expenditure appear to be growing more strongly than expected, which would not be the case if growth was the problem. It is more likely that higher than expected inflation has boosted spending a little more than receipts and that this is the main reason for the overshoot.

Shocking news from the high street

Tony Dolphin — Thu, 16 Jun 2011 14:07:10 +0000

Retail sales fell by 1.4 per cent in May according to figures released today (pdf) by the Office for National Statistics (ONS). This more than reversed the 1.1 per cent increase in April, when sales were boosted by a number of special factors: good weather, the timing of Easter and the royal wedding. Putting aside the latest monthly volatility, what is striking is that sales have increased by just 0.2 per cent over the last year.

The biggest factor behind disappointing sales is higher inflation – particularly for food and energy. If other factors were mainly responsible, then we would expect both sales volumes and sales values to be weak. But, sales values are up 3.8 per cent over the last year - a little below par, but no worse.

In fact, given that average earnings have increased by around 2 per cent over the last year, and even allowing for an increase in the number of people in work and earning, what is most surprising is how much faster than household incomes sales are growing. This means one of two things. Either consumers are cutting back on other spending – on services which they regard as less essential – in response to higher food and energy prices, or they are saving less and borrowing more.

If they are cutting back on other spending, then it is likely that real GDP growth will continue to disappoint over the next few quarters and even the Office for Budget Responsibility’s (OBR) modest forecast for an increase of 0.4 per cent in Q2 will look too optimistic.

If they are borrowing more, then moderate growth is possible – but at the cost of a delay in the much-desired rebalancing of the economy away from a reliance on debt-fuelled consumption.

ONS reveals impact of immigration on low-paid jobs and wages; how should Labour react?

Guest — Thu, 26 May 2011 12:52:50 +0000

By Matt Cavanagh, Associate Director, ippr

Today for the first time the ONS published figures confirming that immigration has had a significant effect at the lower end of the labour market over the last decade.

Just over 20% of workers in low-skill occupations were born outside the UK. This is more than double the proportion in 2002 – and a much steeper rise than at higher skill levels, as this ONS graph shows:

The overall number of low-skill jobs is broadly unchanged at around 3.2 million – but the number of UK-born workers in these jobs has fallen from 3.56m to 3.04m, while the number of non-UK-born workers has risen from 298,000 to 666,000.

How to deal with the impact of immigration at the lower end of the labour market is top of the agenda for both the Conservatives and Labour.

David Cameron set out his solution in a high-profile speech in April: he argued that if we reduce the supply of immigration, while at the same time making it harder to live on benefits, this will shift large numbers of people from welfare to work.

Ed Miliband’s argument was different: that if wages and conditions improve, the result will be simultaneously to reduce the demand for low-paid migrants, and to shift people from welfare to work – but by making work more attractive, rather than making living on benefits harder.

It is a healthy development that the Conservatives as well as Labour now accept that low skill immigration is a symptom of our real problems (welfare for the Tories, wage stagnation for Labour) rather than the cause. But the problem for Cameron’s argument is that he can’t really restrict the supply of low-skill immigration. Today’s figures confirm that most of the increase in non-UK-born workers in low-skill jobs over the last decade are Eastern Europeans.

Other figures out today confirm that immigration from Eastern Europe is rising again – 50,000 up from last year. Labour should seize the opportunity to flesh out its alternative argument, aimed at the demand for immigration not the supply – showing it is more realistic, as well as fairer, especially for the 3 million British nationals already in low-paid work.

Strong exports keep the UK economy out of recession

Tony Dolphin — Wed, 25 May 2011 11:13:39 +0000

The UK economy grew by 0.5 per cent in the first quarter of the year, according to the second GDP estimate (pdf) released by the Office for National Statistics (ONS) today. After adjusting for ‘snow effects’, output in the first quarter was unchanged from its level in the third quarter of 2010.

According to the ONS’s figures, household spending fell by 0.8% in real terms over the last two quarters and investment spending dropped 6.2%.

Total domestic spending fell by 1.3% – and it would fallen by more had not government spending increased by 1.4%. This fall in domestic spending can be attributed to two factors.

First, surveys suggest the announcement of the government’s tax and spending plans for the next four years has had a negative effect of consumer and business confidence. Worries about the effect of tax increases and spending cuts on the economy have probably already led to some cutbacks in spending plans.

Second, higher food and energy prices – at a time when wages are only increasing at a very moderate pace – have squeezed households’ ability to spend on other goods and services.

The positive news is that net trade is filling some of the gap caused by declining domestic spending. In part, this is because demand for imports has weakened alongside the drop in domestic spending.

Imports were, however, still up 0.8% over the last two quarters. The bigger effect comes in the form of an export boom. Exports are up 5.5% in real terms over the last two quarters and 10.4% in the last year.

The government has said it wants to rebalance the economy away from debt-funded domestic spending and towards exports. The export side of this shift is progressing well and lending figures show that increases in debt across the economy are modest.

The problem is that confidence is low and real incomes are contracting, so households and businesses are now reducing their spending.

This was not part of the plan. Increased certainty about the public finances was supposed to lead to increased confidence and more spending. Instead, greater uncertainty about the economic outlook – and some bad luck with global commodity prices – has led to reduced confidence and less spending. Were it not for the export boom, the UK would now be back in recession.

The consequences of Mr Osborne: More deficit

Ann Pettifor — Tue, 24 May 2011 17:07:07 +0000

Ann Pettifor is the co-founder of the think tank PRIME

One has to feel sorry for the chancellor. Many mainstream economists – in both the City and academia – backed him to the hilt: egging on his austerity policies, and boldly forecasting the rate at which the deficit would fall. The governor of the Bank of England caused controversy by endorsing the strategy. Markets greeted the austerity programme with euphoria. And No 10 was castigated for preparing a plan B.

Professor Chick and I were among the few to sound a warning, in our June, 2010 publication: “The economic consequences of Mr. Osborne” we insisted that once the private banking crisis had been transmitted to the real economy, fiscal consolidation would not ‘slash’ the government’s debt, but cause it to rise. Our argument was not based on ideological conviction, but on a century’s worth of macroeconomic evidence.

Today, those who shared our fears have been vindicated – even before the coalition’s deep, job-destroying spending cuts have been fully implemented. The announcement by the Office for National Statistics (ONS) that the deficit had widened dramatically in April by £10 billion -the largest April budget shortfall since monthly records began in 1993 - has been seized upon in shock by the chancellor’s friends in the media and the City. Without any apparent qualms, they have fallen over themselves to deplore the rise, and predict economic gloom.

Mr Osborne ought to choose his friends (and economic advisers) more carefully.