Quarterly Bulletin
Statistics Articles

Publication of narrow money data: the implications of money market reform (286k)
(by Norbert Janssen of the Bank’s Monetary and Financial Statistics Division and Peter Andrews of the Bank’s Monetary Assessment and Strategy Division). The published M0 series comprises notes and coin in circulation and bankers’ operational balances at the Bank of England, with the latter accounting for a very small part of the whole. As part of the money market reforms to be introduced in 2006, banks and building societies will be able to hold interest-bearing reserve accounts at the Bank of England that will be much larger than their former operational balances. After the reform, the Bank plans to discontinue publication of M0 and instead publish separate series for notes and coin in circulation and banks’ and building societies’ reserves.

Measuring interest accruals on tradable debt securities in economic and financial statistics
(82k)
(by Chris Wright of the Bank's Monetary and Financial Statistics Division). This article reports a current methodological debate about the way in which interest flows are recorded in a variety of macroeconomic statistics. When new international statistical standards were published in 1993, one of the major changes to the recommended presentation of the System of National Accounts and the Balance of Payments was the adoption of accruals recording for income and expenditure. However, as countries have begun to implement these standards, questions have been raised about their exact interpretation in respect of interest flows associated with tradable debt.

In essence, the issue is how to measure the property income from a fixed-term debt security on which the cash flows are fixed but whose market value is free to vary. Two methodologies in particular are under scrutiny: the first views the accruing interest income as fixed over the life of the security, once the issue price and conditions of future cash flows are known; the second takes the view that there is no a priori way of determining what proportion of the future payments stream represents interest and what proportion principal. Under this view the income stream is fixed only for so long as market conditions are constant after issue. Following any change in conditions that results in a change in the value of the security, a new future income profile is established.

Choosing between these alternatives raises some profound conceptual and practical questions. At one level, these concern the accounting rules required for coherence within the National Accounts. At a second level, the issues concern the practical implications of a change in terms of both data collection and interpretation. National accountants and government finance statisticians in the United Kingdom, and most other countries, adopted the first of the two methodologies when implementing the new standards. Moving to the alternative methodology would have consequences for recorded interest flows within the accounts, in turn leading to different profiles for national and sectoral saving and deficits, including the general government surplus/deficit.

This article reviews these alternatives and concludes in favour of the second approach. It is a summary of a longer discussion document, commissioned by the International Monetary Fund (IMF). The full paper looks separately at the principles of accruals accounting; the conditions for coherence within the National and Sector Accounts; measurement problems; and the implications for users, particularly in the area of government debt management. The present shorter text aims to give sufficient flavour of the central arguments to indicate why this is an important issue for users of macroeconomic statistics, and the reasons for recommending a change of practice.

Public sector debt: end March 2000 (64k)
Public sector net debt fell by 2.8%, at nominal value, during the financial year to end-March 2000. This was the second successive annual reduction, following seven consecutive annual increases up to 1998. At end-March 2000 public sector net debt represented 36.6% of GDP, the lowest figure since 1994 and 3 percentage points lower than at end-March 1999. This article continues the annual series in the Quarterly Bulletin analysing the outstanding financial liabilities of the public sector. It discusses developments during the year, and considers the implications of the current level and structure of UK government debt.

Public sector debt: end March 1999 (116k)
This article continues the annual series in the Quarterly Bulletin analysing the debt position of the UK public sector. It looks at market and statistical developments in the financial year to end March 1999, and examines some of the domestic and European issues that have influenced these measures. It also analyses the composition and distribution of the national debt.

• Public sector net debt fell by £3.7 billion to £349 billion, at nominal value, during the financial year to end March 1999. This was the first annual reduction since 1989/90 At end March 1999 public sector net debt stood at 40.6% of GDP, the lowest end-March figure since 1994, and 2 percentage points lower than at end March 1998.
• General government gross debt—the 'Maastricht' measure—also fell during the year, to £399 billion at end March. At 47.4% of GDP, this is comfortably below the 60% reference value in the Maastricht Treaty. The general government had a financial surplus of 0.9% of GDP in 1998/99, well within the Maastricht reference value, which allows a deficit of up to 3% of GDP.
• All data presented in this article reflect the transition to the latest international statistical standards, the European System of Accounts (ESA95). This is consistent with the UK National Accounts, published by the Office for National Statistics. However, as before, government debt figures are still presented on a nominal, rather than a market, valuation. The box on pages 356­57 gives details of the changes and shows the impact on the measurement of the public sector debt position.

The external balance sheet of the United Kingdom: recent developments (83k)
This article summarises the development of the international investment position of the United Kingdom between 1988 and the first half of 1999. It continues an annual series begun in 1985.

The article describes how financial flows and changing asset values affect the United Kingdom's external balance sheet. It relates investment income flows and capital gains to stocks of assets and liabilities, and compares the United Kingdom's international investment position with those of other major economies. A box gives details of the UK participation in the IMF-sponsored coordinated portfolio investment survey.

The Bank's use of survey data (66k)
(by Erik Britton of the Bank's Structural Economic Analysis Division, and Joanne Cutler and Andrew Wardlow of the Bank's Conjunctural Assessment and Projections Division). The Bank of England's Monetary Policy Committee (MPC) is charged with the task of achieving the Government's inflation target. A central part of this task involves interpreting information about the current state of the UK economy, and assessing its medium-term prospects. Surveys form part of the broad range of information available to the MPC, along with official statistics, data from financial markets, and the information provided by the Bank's regional Agencies. In this sense, surveys complement other sources of information. But importantly, the forward-looking nature of many survey responses means that they often provide information that is additional to official and other sources of data.

This article outlines how Bank staff use state-of-trade type surveys: as a timely indicator of forthcoming official data; as an independent cross-check on official data and other information; as forward-looking information on the economy, particularly up to the short-term horizon; and to provide additional information to explain economic behaviour. It discusses a variety of approaches the Bank uses to assess survey information, and to identify news about the economy. The article outlines how simple observation can be useful, and explains how qualitative survey information is transformed into quantitative estimates and how incremental news might be extracted from surveys. The approaches described illustrate how surveys help the MPC to interpret economic conditions, and resolve puzzles and uncertainties about the economic outlook.

Surveys complement official and other information; they are not a substitute for it. Many surveys are based on smaller, and less representative, samples than the official statistics. So they may be subject to bias, or to a higher degree of measurement error than the official data. The MPC has to form a judgment based on all available information, of which survey evidence is one valuable source. The techniques described reflect the Bank's aim to use this evidence as systematically as possible to inform the MPC's policy decisions.

Public sector debt: end March 1998 (99k)
This article continues the annual series in the Quarterly Bulletin analysing the debt position of the UK public sector. It looks at developments in net and gross debt in the financial year to end March 1998, and examines some of the domestic and European issues that have influenced these measures. It also analyses the composition and distribution of the national debt.

The Office for National Statistics published the UK National Accounts in line with the updated European System of Accounts (ESA95) for the first time in September. This has had a number of implications for how debt levels are compiled. To ensure consistency with the previous articles in this series during the transition period, the data presented here are based on the previous accounting system. However, details of the changes and estimates of how they affect public sector debt are explored in the box on pages 334­35.

• In March 1998, the nominal value of the public sector's net debt stood at £352 billion, virtually unchanged from the March 1997 level of £350 billion. As a percentage of GDP, this was a fall of almost 2 percentage points. Total central government gross debt increased by £2 billion in 1997/98, to £403 billion.
  
• The ratio of general government consolidated gross debt to GDP on a Maastricht basis fell during 1997/98 to 51.7%, remaining comfortably within the 60% reference level in the Maastricht Treaty. The general government financial deficit has fallen below its reference value of 3% for the first time since 1991, to 0.7% of GDP for the year to March 1998.
  
• The responsibility for gilt issuance and sterling debt management was transferred from the Bank of England to the UK Debt Management Office, an executive agency of HM Treasury, on 1 April 1998. The transfer of cash management is not expected before the end of the year at the earliest.

Inflation and growth in a service economy (99k)
(by DeAnne Julius, member of the Bank's Monetary Policy Committee and John Butler of the Bank's Conjunctural Assessment and Projections Division). This article sets out the initial findings of a project team set up by the Bank to examine the behaviour of the service sector, in the light of the increasingly important role that services play in the UK economy, and so in achieving the Government's inflation target.

The project has drawn on work by others, both from this country and abroad. It tries to reach comprehensive and aggregate conclusions where possible, while still recognising the critical diversity within the huge UK service sector. Through the Bank's network of regional Agents, the project team has also benefited from discussions with many service businesses. Their initial findings are primarily descriptive and backward-looking, typically covering the period 1970­97, or as much of it as the relevant data series allow. They quantify the growing role of services in the UK economy, and identify the key differences revealed by the data between the behaviour of services and the rest of the economy.

With the growing significance of the service sector in the UK economy, it becomes increasingly important to understand how the sector behaves, not least because of its potential impact on inflation, and in achieving the inflation target set by the Government. But less is still known about services than about the manufacturing sector. The initial findings of the Bank's project team, described in this article, give rise to a number of issues that might be followed up in further work, by either the Bank or others.

The foreign exchange and over-the-counter derivatives markets in the United Kingdom (83k)
(by Jamie Thom of the Bank's Foreign Exchange Division and Jill Paterson and Louise Boustani of the Bank's Markets and Trading Systems Division). In April this year, the Bank of England conducted its regular survey of turnover in the United Kingdom foreign exchange and over-the-counter (OTC) derivatives markets, as part of the latest worldwide survey organised by the Bank for International Settlements (BIS). The foreign exchange market survey has been conducted triennially since 1986, and a parallel survey of the OTC derivatives markets was first conducted in 1995. The article sets out the results for the 1998 survey (in US$ billion), and compares them with the 1995 survey and results for other major centres.

The survey shows that:

• Average daily spot and forward foreign exchange turnover for April 1998 was $637 billion, 37% higher than the $464 billion per day recorded three years earlier (an annualised growth rate of 11%).
  
• Average daily turnover in the United Kingdom for OTC currency and interest rate derivatives was $171 billion, 131% higher than the $74 billion per day recorded three years earlier (an annualised growth rate of 32%).
  
• The United Kingdom has consolidated its position as the world's largest centre for foreign exchange and OTC derivatives business, accounting for 32% and 36% of the global foreign exchange and OTC derivatives markets respectively.
  
• The forward foreign exchange market continued to grow more rapidly than the spot market, which now represents only 35% of total foreign exchange turnover.
  
• US dollar/Deutsche Mark retained its position as the most widely traded currency pair (22% of all spot and forward foreign exchange transactions). The share of sterling trading rose, and sterling/US dollar regained its position as the second most actively traded currency pair (14% of turnover). Cross-trading of ERM currencies generally declined.
  
• The proportion of interest rate OTC derivatives turnover accounted for by swaps increased from 32% to 56%; the proportion accounted for by forward rate agreements (FRAs) fell from 59% to 35%.
  
• ERM currencies dominated the UK interest rate derivatives market, making up 56% of all trades. The Deutsche Mark almost doubled its share of the market, growing from 18% to 32%; all other major currencies lost market share.
  

Recent changes to the national accounts, balance of payments and monetary statistics (50k)
(by Anna Brueton of the Office for National Statistics and John Thorp of the Bank's Monetary and Financial Statistics Division). In September 1998, the Office for National Statistics made major changes to the presentation of the UK National Accounts. This article summarises these changes and complementary changes to the balance of payments statistics and to the banking and monetary statistics produced by the Bank. The November Inflation Report contains a description of the impact of the changes on the National Accounts, and an assessment of the UK economy based on the new data.

The changes introduced by the ONS in September 1998 were the most extensive changes to the UK National Accounts since the first publication of the national income and expenditure 'Blue Book' in 1952. These changes followed revisions to international standards, and harmonised the statistics that the ONS publishes for international and domestic purposes. Previously, these were produced on the basis of different accounting standards, which could be confusing for those who wished to make inter-country comparisons. GNP and its components were reported using the European standard, ESA 1979, but statistics for domestic purposes were based on a version of the United Nations' System of National Accounts (SNA) 1968, adapted as economic circumstances required. The changes include the adoption of a new, internationally agreed, system of national accounts and balance of payments. Parallel changes have been made in the banking and monetary statistics produced by the Bank.

In addition, a number of other significant changes are implemented in this year's Blue Book. Price and volume series have been rebased to 1995 = 100; survey data grossed from a more comprehensive register of businesses are included in the National Accounts for the first time; and there are extensive methodological changes and data revisions, including a new approach to measuring the output of the public sector.