Update to Private Investment series

In the data section of our website we have been providing an estimate of "Private Investment". The compilation was explained in this post and was simply the sum of "Business Investment" and "Private Sector Dwellings". In September 2014 the ONS announced major changes to the UK National Accounts, and they had a very large impact on the measures for Gross Fixed Capital Formation. As mentioned in a previous post, these revisions are big:
Here are the year-on-year growth rates (once again comparing 2013 with 2015 data, but this time with a difference colour scheme):
Now, the method is simply summing the following:
  • Business investment (NPEL)
  • Private sector dwellings (L636)
  • Private sector costs (L637)

And we contrast this with: 

  • General government (DLWF)

Here is the updated estimate:

The chart below shows the updated figures compared to using the 2013 methods:

As previously mentioned, the main difference is the stronger recovery in 2010. Note that we are using quarter on quarter (of same quarter of previous year) data. There is dramatic volatility with the private investment figure, showing -24.5% in Q2 2009 and +12.4 in Q4 2010. This may be the result of the way in which we are measuring growth. I tend to prefer QoQofY rather than QoQ because the latter tends to be more volatile, and the former shows the bigger picture. For example, here is a comparison of the two different growth rates for total Gross Fixed Capital Formation (i.e. investment):

These are the two measures published by the ONS. An alternative, however, is to annualise the data. Here is the chart showing Private vs. Government Investment with the quartely growth rate compared to an annualised one:

As you can see, the darker lines (quarterly growth) are less volatile than the lighter lines (annualised). This is the reason we opt for quarter on quarter (of same quarter of previous year) growth rates.


Business Investment revisions are startling

I knew that the September 2014 changes to the National Accounts were big, but having a cursory look at Business Investment has been eye opening. The chart below shows the total amount (£ million), as of February 26th 2015, versus June 2013. The 2009 recovery phase is a stunning contrast. I've heard informally macro forecasters suggest that we just rip up everything we thought we knew. Why isn't this bigger news? 


Natural interest rate estimates make the Daily Telegraph

Pete Spence has written an excellent article on natural interest rates in the Daily Telegraph. He says, 

The crisis came at an inconvenient time for policymakers. For the past two decades the so-called “natural rate” had been been trending downwards. This is the theoretical rate which best promotes growth and simultaneously keeps inflation in check. It has been a source of much debate among economists.

He goes on to cite the Kaleidic Economics estimates of the UK natural rate.

My intention is to update this on a regular basis and publish it on our Data page. It looks like there is some interest in this, and so I will focus efforts on providing it. This is great coverage, and especially encouraging that debate is moving in this direction.


MAex growth stabilises at 7.28%

Following recent falls in the growth rate of MAex, December 2014 figures show that it has risen slightly to 7.28%.

Update: There was an error with the chart presented in the previous version of this post.



UK NGDP Q4 2014 prediction market

February 26th will see the publication of the Second Estimate of the UK National Accounts, which will include our first look at the NGDP figures for Q4 2014. 

 For a link to the question at Inkling Markets, see here.