The introduction of the Standard Industrial Classification 2007 (SIC2007), along with associated survey redesigns, resulted in changes to the production processes for gross capital formation estimates and outputs (for example, Quarterly GDP, Blue Book, Business Investment and Capital stocks and capital consumption).
A previous background note outlining the proposed changes has already been published.
This short note outlines some of the issues ONS has faced with the production of these estimates and summarises what work is underway within ONS to further develop and improve the outputs to address the existing limitations and also prepare for future changes (introduction of the European System of Accounts in 2014).
This will help key users understand the limitations of the currently published estimates, but also to highlight current developments that will improve the estimates.
Comprehensive quality assurance of the gross capital formation estimates, for example, Inventories and Gross Fixed Capital Formation (GFCF), as part of Blue Book 2011 identified concerns in the disaggregation of some outputs.
Due to these quality concerns, at a late stage in the production process, ONS made the decision to publish only aggregated data for some of the GFCF time series; for example, Table 9.1 in the Blue Book.
Further quality assurance has also identified areas where the ONS will focus on improving the methods used in the calculation of the GFCF and Inventories estimates.
Issues identified are:
The methodology used to calculate estimates of GFCF is performed at a detailed level on a net basis. This led to the existence of zeros and negative numbers in the detailed series, which causes problems for chain-linking and seasonal adjustment. As a consequence, a proposed future change will include the use of calculations at an appropriate level, for both acquisitions and disposals separately. This will ensure that chain-linking is working correctly, but also provide improved estimates for the final net data.
It had previously been announced that a revised methodology for the deflation of GFCF would be introduced in the 2011 Blue Book; making deflation more consistent across the accounts. During the production of the Blue Book, a number of quality assurance issues arose and the proposed change to deflation methodology was not implemented. At present, to help mitigate this issue, the current published estimates are now constructed using previously used deflation methods but this also has had some system implications to take on the most recent deflator information. For the future, work is proceeding to identify the best deflator methodology as part of introducing a new GFCF system.
The combination of system changes and new methods for GFCF estimates has meant that some of the lower level splits that were previously available are now no longer available. This is in part due to the use of changed systems, and also new survey information where the splits between assets have changed. In the cases where users have highlighted specific time series, we have endeavoured to ensure that these time series are available, particularly those in Table 9.1.
The GFCF estimates are a key input into the capital stocks and capital consumption processing. The calculation issues impacting on the GFCF estimates have had a direct impact on the availability of the capital stocks estimates. Historically, the non-financial balance sheet, capital stock and capital consumption estimates were released together with the Blue Book. For this year, the ONS made a decision to separate the Non-financial balance sheet from this joint release and have a separate release. This was successfully released on time. Currently, the capital stocks and capital consumption release is provisionally planned for March 5 to enable further quality assurance of these estimates.
Planned upcoming changes to the calculation of gross fixed capital formation estimates
As progress is made with these improvements, ONS will provide updates and share information as to the extent of the planned revisions.
A redevelopment of the ONS production process for both Inventories and GFCF estimates is already underway. The current time frame includes a target date for full implementation of Blue Book 2013 to allow sufficient time for thorough testing and integration within the core national accounts.
Going forward, we are planning to:
Liaise with key users to determine the level of outputs required for these datasets and understand what they are currently being used for to ensure they are fit for purpose. This will help streamline ONS processes and outputs and ensure we provide the appropriate quality for key outputs and also the right level of detail.
Improve our statistical processes for derivation of inventories and GFCF outputs by changing our methods and processes to ensure outputs are robust and meet user needs.
If you would like to be kept informed of GFCF developments please contact email@example.com