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Blue Book 2011: Improvements to GDP(O), IoS and IoP This product is designated as National Statistics

Released: 26 August 2011 Download PDF

Abstract

A separate article by Everett (2011) set out the scope and content of Blue Book 2011. The purpose of the current article is to explain how these improvements impact on the main short-term output indicators - the output measure of Gross Domestic Product (GDP(O)), the Index of Services (IoS) and the Index of Production (IoP).

Acknowledgements

The author would like to thank Graeme Walker, Glenn Everett, Steve Drew (in particular), Pete Lee, Rob Doody, Matthew Hughes and Tim Butler for their input to the article.

Introduction

The United Kingdom Quarterly National Accounts, consistent with Blue Book 2011, will be published on 5 October 2011. As noted in Everett (2011), Blue Book 2011 is a major step forward, and also a foundation on which to build future improvements. Blue Book 2011 sees a number of significant changes, and improvements, to the main short-term output indicators:

  • the introduction of the new Standard Industrial Classification (SIC 2007) provides more detail on the service sector, reflecting its growing importance in the economy

  • the method of deflation has been improved by replacing the Retail Prices Index (RPI), where it was used, with the more conceptually appropriate Consumer Prices Index (CPI) 

  • the new IT platform (CORD) provides an integrated framework for the three stages of the GDP process, that is, short-term indicators, quarterly GDP estimates and the annual Supply and Use estimates

  • the reference year will be moved forward by two years, so that the latest base year for the chained volume measure of GDP will be 2008. At the same time, the three measures of GDP will be reconciled and fully balanced for 2007, 2008 and 2009 and data for the preceding years (1992 to 2006) will be reconciled and rebalanced using conversion factors reflecting changes to the new industrial classification

Further details on these changes, and their impact on GDP(O), IoS and IoP, are set out in this article.

The new Standard Industrial Classification (SIC 2007)

Background

In keeping with EU regulations, Blue Book 2011 will be published for the first time using the revised SIC. The change in classification is motivated by the need to keep up with changes in the structure of the economy. Key differences in SIC 2007 include a number of new sections providing more service sector detail, with less detail on manufacturing. These changes reflect the growing importance of services in the economy.

The revised SIC 2007 has 21 sections and 88 divisions, in comparison to SIC 2003 which had 17 sections and 62 divisions. At the highest level, some sections can be easily compared with the previous version but the introduction of some new concepts at the section level (for example, 'Information') complicates the comparison. Table 1 below presents a broad comparison between the two classifications at the section level.

Table 1 Comparison of SIC 2003 and SIC 2007 classifications

  SIC 2003   SIC 2007
A Agriculture, hunting and forestry A Agriculture, forestry and fishing
B   Fishing
C Mining and quarrying B Mining and quarrying
D Manufacturing C Manufacturing
E Electricity, gas and water supply D Electricity, gas, steam and air conditioning supply 
E Water supply, sewerage, waste management and remediation activities
F Construction F Construction
G Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods G Wholesale and retail trade; repair of motor vehicles and motor cycles
H Hotels and restaurants I Accommodation and food service activities
I Transport, storage and communications H Transport and storage
J Information and communication
J Financial intermediation K Financial and insurance activities
K Real estate, renting and business activities Real estate activities
M Professional, scientific and technical activities
N Administrative and support service activities
L Public administration and defence; compulsory social security O Public administration and defence; compulsory social security
M Education P Education
N Health and social work Q Human health and social work activities
O Other community, social and personal services activities R Arts, entertainment and recreation
S Other service activities
P Activities of private households as employers and undifferentiated production activities of private households T Activities of households as employers; undifferentiated goods- and services producing
activities of households for own use
Q Extraterritorial organisations and bodies  U Activities of extraterritorial organisations and bodies

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SIC 2007 includes a number of new sections giving more detail on the service sector:

  • section J ('Information and Communication'): this new section brings together publishing, motion picture and sound recording industries, broadcasting (radio and television), telecommunication and internet activities

  • sections L ('Real estate activities'), M ('Professional, scientific and technical services') and N (‘Administrative and support services’): these new sections have been formed from the old section K ('Real estate, renting and business activities')

  • section R ('Arts, entertainment and recreation'): previously part of section O ('Other community, social and personal service activities').

There are significant changes below the section level. Further details are set out in the UK SIC classification manual (ONS, 2009) or Hughes et al (2009).

The changes in classification will have an effect on the presentation of the data in the Statistical Bulletins and on the website. This is considered in a later section.

Impact of SIC changes on IoP and IoS

The new classification has a small impact on total IoP and IoS and a slightly bigger impact on manufacturing. In the new classification, sewerage and waste disposal has been moved from services to production and publishing has moved in the opposite direction. These changes increase the size of the production sector by about 0.3 per cent and decrease the size of the services sector by the same amount (note that this is over and above any changes to the weights themselves for 2007 and 2008). The changes also lead to differences in the behaviour of the IoP and IoS over time as the industries moving between the two sectors behave in quite different ways.

Note that there is also a switch within the production sector between manufacturing and non-manufacturing caused by the new treatment of recycling, which moves out of manufacturing into the new section E - this reduces the size of manufacturing although production as a whole is unchanged. 

Construction of back data

The move to the new classification raises the issue of back data on the new basis. Most ONS surveys that are used in the compilation of GDP(O) have been collected from the first quarter of 2010 on a SIC 2007 basis. For periods before 2010 back data has been compiled in one of two ways:

  • For more recent periods individual survey responses have been re-weighted and re-aggregated using factors provided by the ONS's register of businesses, where businesses have been classified on the old and new basis since 2008

  • For less recent periods, conversion matrices have been used. This method apportions industry estimates based on SIC 2003 and re-aggregates them to form SIC 2007 estimates; the proportions used for the distribution come from data on the ONS register. This method was used by ONS at the time of the last major change in SIC, and has been widely used by other National Statistical Institutes. It is the most practical method to use for historic periods, since dual-coded micro data are not available.

A lot of the data did not need to be converted as there was a direct (that is, 1 to 1) correlation between the classifications.  

The level of publication

The introduction of SIC 2007 raises the issue of what should be published (in, for example, the Statistical Bulletins or on the website), and how it compares with what users are currently getting.

GDP (O)

GDP(O) data is currently published in three separate Bulletins each quarter - the preliminary GDP Bulletin, the second estimate of GDP Bulletin and the Quarterly National Accounts Bulletin. The preliminary GDP Bulletin contains quite aggregated data (see column two in the table below for the breakdown). The other two Bulletins also contain this analysis with more detailed analysis on the service sector in a separate table. ONS proposes to continue with a similar presentation on the move to the new SIC. Table 2 below shows the content of the preliminary GDP Bulletin alongside the proposed new presentation.

Table 2 Preliminary GDP Bulletin: current and proposed new presentation

SIC 2003   SIC 2007
A+B Agriculture, hunting and forestry plus A Agriculture, forestry and fishing
Fishing
C Mining and quarrying B Mining and quarrying
D Manufacturing C Manufacturing
E Electricity, gas and water supply D Electricity, gas, steam and air conditioning supply 
    E Water supply, sewerage, waste management and remediation activities
IoP IoP IoP IoP
F Construction F Construction
G+H Distribution, hotels and restaurants G+I Distribution, hotels and restaurants
I Transport, storage and communications H+J Transport and storage plus
Information and communication
J+K Business services and finance K to N Business services and finance
L to Q Government and other services O to U Government and other services
IoS IoS IoS IoS
GVA Gross Value Added at basic prices GVA Gross Value Added at basic prices
GVA exc  Gross Value Added excluding oil and gas GVA exc      Gross Value Added excluding oil and gas

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The aim in the new presentation is to keep as much continuity as possible with the old. Thus, aggregates G+I and H+J will be formed to provide some comparability with the existing G+H and I series respectively (note that the relationship between the old and new classifications in the table above is not necessarily 1 to 1, even where the same description is used).

In some ways it is perhaps more natural to group G and H and I and J in the new classification but the grouping above is felt to be less helpful in terms of continuity. ONS will review the presentation next year.

IoS

The IoS Bulletin provides similar aggregate analysis on the IoS followed by detailed tables on most of the individual industries. On the move to the new SIC, the presentation will continue broadly as above at the aggregate level followed by more detailed information below that level. There is an issue in providing information on all of the industries in the Bulletin itself as there are 88 industries in the new classification compared to 62 in the old. There is also a need to rationalise the amount of data in the Bulletin. The proposed detail (below the aggregate level) is shown in Table 3 below.

Table 3 IOS Bulletin: proposed presentation below the aggregate level

SIC 2007
G Wholesale and retail trade; repair of motor vehicles and motorcycles
45 Wholesale and retail trade and repair of motor vehicles and motorcycles
46 Wholesale trade, except of motor vehicles and motorcycles
47 Retail trade, except of motor vehicles and motorcycles
H Transportation and storage
49 Land transport and transport via pipelines
51 Air transport
52 Warehousing and support activities for transportation
53 Postal and courier activities
I Accommodation and food service activities
J Information and communication
JA Publishing, audiovisual and broadcasting activities
JB Telecommunications
JC IT and other information service activities
K&L Finance, insurance and real estate activities
K Financial and insurance activities
64 Financial service activities, except insurance and pension funding
L Real estate activities
M&N Other business services
MA Legal, accounting, management, architecture, engineering, technical testing activities.
MC Other professional, scientific and technical activities
N Administrative and support service activities
O-T Government and other services
O Public administration and defence
P Education
Q Human health and social work activities
R Arts, entertainment and recreation
S Other service activities
T Activities of HH as employers

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The remaining series will be made available on the website. Again, the ONS plan to review the presentation next year - this review will also involve an analysis of the experimental components of the IoS and their performance in the new classification.

IoP

The IoP Bulletin follows a similar format to the IoS. The production sector is divided into three main sectors (mining & quarrying, manufacturing, energy). The Bulletin provides information on each sector and the contribution each makes to overall production. The manufacturing sector is further sub divided into 14 sub-sectors and information is also provided for each of these. On the move to the new SIC the presentation within the Bulletin will be broadly similar focusing on the sector level, with a sub-sector breakdown for manufacturing. In general the publication level for the IoP will be at the Supply Use level and these series will be available via the website. The sector and sub-sector breakdown is shown in Table 4 below.

Table 4 IOP Bulletin: proposed presentation

  SIC 2007
IoP IoP
B Mining and Quarrying
C Manufacturing
CA Manufacture of Food products, beverages and tobacco
CB Manufacture of textiles, wearing apparel and leather products
CC Manufacture of wood and paper products, and printing
CD Manufacture of coke, and refined petroleum products
CE Manufacture of chemicals and chemical products
CF Manufacture of basic pharmaceutical products and pharmaceutical preparations
CG Manufacture of rubber and plastic products, and other non-metallic mineral products
CH Manufacture of basic metals and metal products
CI Manufacture of computer, electronic and optical products
CJ Manufacture of electrical equipment
CK Manufacture of machinery and equipment n.e.c.
CL Manufacture of transport equipment
CM Other manufacturing and repair
D Electricity, gas, steam and air conditioning supply
E Water supply, sewerage, waste management and remediation activities 

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Series Identifiers (CDIDs)

Users are able to access individual series via unique four letter identifiers known as CDIDs (Central shared Database IDentifiers). These identifiers also appear in the Bulletins. The move to the new classification involves significant changes in the lower level detail, which means that new CDIDs need to be set up. At the higher levels there is perhaps more of a case for keeping some continuity where possible but even in the case of GDP(O) the new series relates to a different breakdown of the economy. It therefore makes sense to make a clean break and set up new series for everything (this was also done at the time of the last change in classification).

The new CDIDs for GDP(O), IoS and IoP are available on the ONS website (see ONS, 2011).

Methodological changes

As previously announced in Everett (2010), ONS has been working on system changes to improve the quality of the National Accounts. One of the main focal points of the system re-development has been improving the consistency of methods across each component of the National Accounts, including GDP(O). One of the main areas of improvement has been the approach to deflation.

At present, National Accounts systems tend to operate at different levels of detail regarding the industry and product breakdown. This has made the flow of data between systems more difficult. From Blue Book 2011, all systems will operate at the same basic level of 114 industries and products (see Drew, 2011, for details of the industries and products). This breakdown was agreed following consultation with users. The current published level of detail for Supply and Use tables is 123 industry groups. Although the new level of detail represents an overall decrease, there will be more detail published for the service sector. 

The design of the National Accounts in the new system and the focus on aligning UK methods with Eurostat's Price and Volume Handbook (Eurostat, 2001), has led to an improved approach to deflation. There are two main strands to this:

  • rather than a piecemeal approach to deflation in different systems, consistency will be established by having a common gateway for deflators through the short-term output based measure of GDP. More details are set out in Drew (2011)

  • as part of this change, RPI series will be replaced by the conceptually preferable CPI series

Replacement of RPI with CPI

Where goods and services are provided to, and consumed by households, a relevant price index should be used to deflate current price series. In the past, the RPI has traditionally been used as it has been the only relevant price index available. However, the international guidance is clear that the CPI should be used in preference. The differences between the RPI and CPI are well documented in the Consumer Price Indices Technical Manual (ONS, 2010a), and in Drew (2011).

GDP(O) is derived by compiling short-term volume estimates of Gross Value Added (GVA) using output based measures. Typically, the monthly turnover data for an industry is deflated by an industry deflator that reflects the predominant products produced by that industry. In this respect, RPI series are used in three main ways:

  • detailed RPI price series are used to deflate industry output where the goods and services produced are consumed in some proportion by households

  • RPIY is used to deflate industry output where no specific prices series are available - it is usual practice in the UK to combine RPIY equally with the relevant AWE series

  • RPI series are also implicitly used where GDP(O) uses data from Household Expenditure

Table 5 provides a breakdown of deflators usage by GVA weight in GDP(O). Overall, about 18 per cent of GDP(O) is currently deflated using an RPI series and will therefore be affected by the move to the CPI. Full details of the deflators used in GDP(O) can be found on the ONS website (see ONS, 2010b).

Improved method of deflation for services

Excluding the change to using CPI series, the source of deflators remains largely the same within the short-term output systems. However, the method with which deflators are applied will change.

At present, the output of each industry is deflated by an industry deflator. For the industries covered by the IoP (mining and quarrying, manufacturing and utilities) an industry deflator is derived by weighting together the main products supplied by that industry. For these industries the main 20 products are used for each industry - this is explained in more detail in Walton et al. (2008). For services, most industries are deflated by the main product. Whilst most industries supply products other than their dominant product, this approach assumes that the price movements of these products move in the same way.

Under the new system, product deflators are weighted together for each industry using the balanced product breakdown from the Supply and Use tables. This improved method will ensure that the resultant industry deflator reflects all the products produced by that industry.

Table 5 Breakdown of deflator usage in GDP(O)

Consumer price used GVA share per cent
Top level RPIY series 5.4
Low-level RPI series 10.5
RPI series used via Household Expenditure 2.5
Total proportion of GDP(O) which just uses RPI 18.4
CPI series via Retail Sales Index 5.4
Low-level CPI series 0.3
Total proportion of GDP(O) which just uses CPI 5.7
Total proportion of GDP(O) which uses consumer prices (either RPI or CPI) 24
Producer Price Indices (covering PPI, EPI and IPI) 21.7
Services Producer Price Indices 9.7
Average Weekly Earnings 7.4
Other deflators (Agriculture Price Index, FTSE, Department for Business Innovation & Skills series) 13.6
Direct volume measures 23.6
Total 100

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These proportions are based on Blue Book 2010 GVA weights for 2006. Sub-totals and totals are in bold.

Background notes

  1. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

    These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.

Supporting information

Glossary

No glossary attached to this article
If you required clarification on any of the terms included in this article, please contact the author on either of the following links gdp@ons.gsi.gov.uk ios.enquiries@ons.gsi.gov.uk

References

  1. Drew S (2011). Deflation Improvements in the UK National Accounts (176.8 Kb Pdf) , ONS

  2. Eurostat (2001). Handbook on price and volume measures in National Accounts

  3. Everett G (2010). Plans for Blue Book 2010 (65.7 Kb Pdf) , Economic and Labour Market Review, April 2010, Volume 4, No 4, pp 54-55

  4. Everett G (2011). Content of Blue Book 2011, Economic and Labour Market Review, April 2011, Volume 5, No 4, pp 87-95

  5. Hughes J, James G, Evans A and Prestwood D (2009). Implementation of Standard Industrial Classification 2007: December 2009 update (108.1 Kb Pdf) , Economic and Labour Market Review, December 2009, Volume 3, No 12, pp 51-55

  6. Office for National Statistics (2009). Standard Industrial Classification of Economic Activities 2007 (SIC 2007) Explanatory Notes (1.29 Mb Pdf)  

  7. Office for National Statistics (2010a). Consumer Prices Indices Technical Manual (1.01 Mb Pdf)  2010 Edition

  8. Office for National Statistics (2010b). GDP(O) source data consistent with Blue Book 2010a (139.8 Kb Pdf)

  9. Office for National Statistics (2011). New series identifiers for GDP(O), IoS, IoP and GFCF

  10. Walton A, Youll R and Hunt C (2008). Impact of methodological changes to the Index of Production, ONS

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