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Index of Services in the National Accounts

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This page is currently under review as part of the GDP Output Improvement Programme (226.7 Kb Pdf) .

The Office for National Statistics (ONS) had developed the Index of Services (IoS) as a monthly indicator of the change in Gross Value Added of the service industries, (the IoS is a chained volume index). IoS represents 74 per cent of total gross value added.

Gross Domestic Product (GDP) can be defined and measured in three different ways

Production or output approach

GDP is the sum of gross value added of the industries plus taxes and less subsidies on products (which are not allocated to sectors or industries).

Expenditure approach

GDP is the sum of final uses of goods and services by resident institutional units (actual final consumption and gross capital formation), plus exports and less imports of goods and services.

Income approach

GDP is the sum of uses in the total economy generation of income account (compensation of employees, taxes on production and imports less subsidies, gross operating surplus and gross mixed income).

Use of three different methods which, as far as possible, use independent sources of information, avoids sole reliance on one source and allows greater confidence in the overall estimation process.

The resulting estimates however, rarely coincide precisely as the sources on which they are based are subject to statistical error; the best estimate of GDP (that is, the published figure) is obtained by reconciling the estimates obtained from each of the three approaches. Annual data at current prices are reconciled through the construction of Input-Output Supply and Use tables for the years for which data are available.

For subsequent periods, the level of GDP set by the annual balancing process is carried forward by using the quarterly movements in production, income and expenditure totals.

This documentation explains the basis of the adjustments that are applied to gross value added (GVA) as part of the annual and quarterly processes of balancing the three measures of GDP.

These adjustments are also included within the monthly Index of Services.

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Frequency of balancing GDP

During each quarter a balanced estimate of GDP is produced as follows in the weeks after the end of the quarter:

3½ weeks

A preliminary estimate of the growth in the volume of GDP from the previous quarter based on output information.

8 weeks

Output, income and expenditure breakdowns of GDP showing growth in the latest quarter.

12 weeks

A full set of economic accounts, including revisions to some earlier quarters, including a full breakdown of GDP at current and constant prices.

Annual GDP data are balanced once a year, using current price Input-Output Supply and Use tables. Revised constant price estimates are also produced.

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Quarterly coherence adjustments

At fixed times in the quarter a 'balance' is struck showing the aggregates from the three different approaches to GDP. The initial estimates supplied for the balance are best estimates on the basis of the source data. At the first stage, response rates to statistical inquiries may still be fairly low and numbers subject to revision. The individual components are aggregated and the resulting overall picture examined.

Typically, income, output and expenditure figures will show different profiles. Different levels of GDP may also emerge from each approach. There is then a period of scrutiny and validation which includes meetings of key players, including the statisticians responsible for the main components of each measure. The scrutiny of initial estimates is designed to test the plausibility of the estimates and consistency of information across the accounts.

Although the constant price estimate of gross value added (output measure) is considered to give the best short-term estimate of volume change, adjustments are applied on some occasions to make small changes to the estimated percentage change in output. These adjustments are applied to the areas that are considered to be the weakest in the composition of gross value added at constant prices. Those adjustments that are applied to the service industries’ gross value added are also applied to the monthly data for the industries within the IoS.

Additional information from outside surveys and sources is considered in the scrutiny process. This provides a useful alternative view to compare with ONS statistics. It may support existing estimates or point to ways of resolving problems and discrepancies.

Comparison of the output and expenditure measures of GDP allows consistency between supply and demand to be checked. This analysis is extended through the use of a commodity flow model that builds on the supply-use framework and the latest quarterly data for 123 products to compare supply and demand at a detailed level. This allows the various data and model assumptions to be tested against each other and the most appropriate adjustments can be made to balance supply and demand.

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Annual coherence adjustments

Once sufficient data are available, the current price output, income and expenditure approaches to GDP are balanced through an annual input-output process. This generally starts just over a year after the end of the year concerned and accounts based on the results are published about 18 months after the end of that year. The balancing of current price Input-Output Supply and Use tables provides a fully articulated analysis of transactions in products in the economy. All of the components of output, income and expenditure are reconciled, at current prices, in the balancing of the tables. Once the three measures have been balanced at current prices, the expenditure components are deflated to obtain an expenditure measure at constant prices.

The basis for estimating monthly and quarterly gross value added (GVA) uses indirect indicators such as deflated turnover or volume indicators. These rely on assumptions that may not hold in the long-term (for example, that the ratio of outputs to inputs remains constant). However, the annual balances achieved through input-output measure GVA more precisely using annual survey data that provides details of both inputs and outputs. Therefore, although constant price gross value added provides the lead indicator of economic change in the short-term, in the long-term constant price gross value added is required to follow reasonably closely the path indicated by the constant price expenditure measure of GDP. To achieve this, special annual coherence adjustments (or coherence factors) are sometimes applied to GDP(O). These annual coherence adjustments are applied to the areas that are considered to be the weakest in the composition of gross value added at constant prices. Those adjustments that are applied to the service industries’ gross value added are also applied to the monthly data for the industries within the IoS. Details of the adjustments are provided within part 2 of the ONS publication, United Kingdom National Accounts: The Blue Book.

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Revisions policy

The UK operates a policy to manage the process of taking on revisions to the data underlying the National Accounts. Account is taken of whether changes are economically significant. The policy is currently under review and the rules are operated flexibly. The normal rules are:

revisions to past quarters are usually only made at the '12 week' stage when the full accounts are published; there are two exceptions: (i) for the fourth quarter revisions are allowed to all four quarters within the year at the '8 week stage'; and (ii) earlier quarters are sometimes revised at the '8 week' stage when publication precedes the Budget

  • at the '12 week' stage revisions are normally allowed to between 1 and 7 past quarters

  • once a year, normally in June or September, it is usual to revise annual estimates for the past three completed years

  • at the same time revisions to earlier years may be selectively allowed if they have a significant impact on the economic picture presented

  • also at the same time quarterly (and monthly) series may be reassessed for several back years to take account of, for example, re-estimated seasonal factors

Revisions to the monthly IoS are made only to the period open for revision. Exceptionally, during the development phase of the IoS, the monthly data have been revised for an earlier period, but they are constrained to remain equal to the previously published quarterly data.

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