Category: Essentials of Economics: Ch 03

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What do ticket resellers and parents have in common?

Examples of rent seeking in economic theory

In March 2024, two people were convicted of running a business that used dishonest and illegal methods to buy and sell tickets for popular live events such as Ed Sheeran, Lady Gaga and Little Mix concerts. Between June 2015 and December 2017, this business purchased 47 000 tickets using 127 names and 187 different e-mail addresses.

Economists refer to these actions as examples of rent seeking. However, many rent-seeking activities are not illegal.

What is rent seeking?

Rent seeking in economic theory refers to costly actions taken by people (i.e. they involve effort and expertise) to try to gain a greater share of a given level of profit /surplus. These actions do not generate any extra surplus or value for society and typically involve people trying to game or manipulate a situation or system for their own personal gain.

In many cases, the opportunity cost of these actions can be considerable. In this case, the opportunity cost is the surplus for society that could have been gained if this effort/expertise had been used to carry out more productive tasks.

A widely cited example of rent seeking is where firms exert time and effort to try to influence government policy through lobbying. Most lobbying activities in the UK are not illegal.

Non-price allocation

When prices are set below the market-clearing rate, by either the government or a private organisation, the quantity demanded of the good/service will exceed the quantity supplied. Therefore, non-price allocation must play a role. In other words, some method other than willingness to pay the price, must be used to determine which consumers receive the goods.

In some instances, such as visits to the GP or places at state schools, the good or service has a zero monetary price. In these cases. non-price allocation methods completely replace the role of the price in determining which consumers obtain the goods/services.

In other examples, a positive monetary price is set, but below the market-clearing rate. In these cases, the price partly determines who get the good/service (i.e. people must be willing to pay the non-market-clearing price), but non-price allocation also plays a role. The further below the market-clearing level the price is set, the greater the potential role for non-price methods.

Some common methods of non-price allocation include:

  • First-come first served. This typically results in some type of queueing, either in person or online (a virtual queue).
  • A random selection process. For example, some goods/services are allocated via a lottery, with names of consumers being randomly drawn.
  • The government or other public bodies in charge of allocating the good develop a set of rules to determine which consumers/people get the good. For example, when allocating places at popular state schools, priority is often given to children who live close to the school (i.e. in the catchment area) or who live in families with certain religious beliefs.

Examples of rent seeking

When non-price methods of allocation are implemented, can consumers engage in activities that increase their chances of getting hold of the good/service? Can they manipulate the system for their own advantage and gain a greater share of any surplus? This is rent seeking.

A survey carried out in January 2025 provides some interesting evidence of rent-seeking actions taken by parents to try to secure a place for their child at a popular school. Twenty-seven per cent of the respondents admitted they had tried to manipulate the system to get their child into their preferred school. Out of those who admitted attempting to manipulate the system:

  • 30 per cent registered a child at either another family member’s or friend’s address that was closer to a popular school.
  • 25 per cent exaggerated religious beliefs and attended church services to try to secure a school place.
  • 9 per cent temporarily rented a second home inside the catchment area for the school.
  • 7 per cent moved into the catchment area for the application, only to move out once their child’s place was secured.

Some of these actions may be dishonest but are not illegal.

Rent-seeking activities in the ticketing market for live events

In the primary market for tickets, prices for popular live events are often set below market-clearing levels. Therefore, non-price methods, such as first come, first served, are used to allocate the tickets. This typically results in some type of queueing. Rent-seeking activities include actions taken by consumers to increases their chances of getting nearer to the front of the queue.

If the tickets are being sold from a physical outlet (i.e. a sales kiosk), then some consumers may start queueing many hours before the kiosk opens – in some cases camping overnight. An example is the ‘The Queue’ for Wimbledon tennis matches. Rather than queueing themselves, some people might pay others to queue on their behalf.

People who are paid to queue are sometimes referred to as a ‘line stander’, ‘queue stander’, ‘line sitter’ or ‘queue professional’. Line standers offer their services via market platforms, such as TaskRabbit.

When tickets are sold online, non-market allocation includes both queuing and random selection. Typically, people have to create an account with the primary market ticketing website (Ticketmaster, See Tickets, Eventbrite or AXS) before the sale begins. Then, using this account, they can enter an online waiting room around 15 minutes before the tickets are available to purchase. There is thus an element of first come, first served. When the sale starts, people in the waiting room are randomly allocated a place in the online queue. Once they reach the front of the online queue, the event organiser normally places limits on the number of tickets they can purchase.

What can people do to manipulate this system and so increase their chances of purchasing tickets? In other words, what are the possible rent-seeking activities? One possibility is to create multiple accounts using the details of friends/family and then join the waiting room with each of these accounts using separate devices. Professional resellers often try to use specialist software, called bots, that can create thousands of fake accounts and so significantly increase the chances of getting to the front of the queue. Once they get to the front of the queue, an account created by a bot can proceed through the purchasing process much faster than a person can. The tickets can then be sold for a profit in the uncapped secondary market via websites such as Stubhub and Viagogo.

The UK government passed a law in 2017 that made the use of bots to circumvent ticket purchase limits an illegal activity. The use of ticket bots in the EU became illegal in 2022. Primary market ticketing websites have also invested in technology that tries to detect and block the use of this type of software.

Government policy in the resale of tickets

Should the government prohibit the resale of tickets or implement a resale price cap to try to deter this rent-seeking activity?

Many economists would oppose this policy because of the benefits of the secondary market. For example, resale helps to reallocate tickets to those consumers with the highest willingness to pay. Therefore, the secondary-ticketing market can have a positive impact on allocative efficiency, but it comes at a cost – rent-seeking activities.

Research by economists published more than ten years ago found that the positive impact of the resale market on allocative efficiency outweighed the rent-seeking costs. However, developments in technology have increased the level of rent seeking in recent years, making it easier and less costly for professional resellers to purchase large amounts of tickets in the primary market. Therefore, it is possible that the rent-seeking cost of the secondary market now exceeds its positive impact on allocative efficiency. A case can thus be made for greater intervention by the government.

Recent accusations have also been made about possible rent-seeking activities by sellers in the primary ticketing market too, adding to concerns.

Some of the problems of implementing a resale price cap were discussed in a previous post: Ticket resales – is it time to introduce a price cap?

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Questions

  1. Compare and contrast the meaning of the word ‘rent’ in everyday language with its use in economic theory.
  2. Give examples of some policies that a business might lobby the government to implement. What arguments might the business make to justify each of these policies?
  3. Outline some of the non-price methods that are used to allocate health care in the UK.
  4. Draw a demand and supply diagram to illustrate the incentives for rent-seeking activities when prices are set below market-clearing levels.
  5. Outline some potential rent-seeking activities by sellers in the primary ticketing market.
  6. Discuss some of the opportunity costs of rent-seeking activity in the market for tickets.
  7. Explain why the growing use of paid line standers might increase the demand for a good/service.
  8. Explain why the percentage of tickets for popular live events purchased by professional resellers has increased in the past 10 years.
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Gold: why the world’s oldest safe haven is back in the spotlight

The gold market has become one of the most talked-about commodity markets in 2025, with prices reaching record highs. This is largely due to increased demand from investors, who see gold as a ‘safe haven’ during times of economic and political uncertainty. Central banks are also buying more gold as a way to reduce their reliance on currencies like the US dollar. With many analysts predicting prices could reach over $4000 per ounce in the next year, the gold market is showcasing how supply and demand, confidence, and global events can all influence a commodity market.

The commodities market is where basic agricultural products, raw materials and metals, such as gold, are bought and sold, often in large quantities and across global exchanges. Commodities are typically traded either in their physical form (like gold bars) at current market prices (spot prices) or through financial contracts, where investors buy or sell in futures markets. These are where a price is agreed today to buy or sell on a specific future date.

As with other commodities, the price of gold is determined by supply and demand. Demand for gold typically rises during times of economic uncertainty as investors want a safer store of value. This results in an increase in its price. Supply and demand, and hence price, also respond to other factors, including interest rates, currency movements, economic growth and growth prospects, and geopolitical events.

Record high prices

This year, the gold market has seen a remarkable rally, with the price of gold hitting a record high. Demand for the precious metal has resulted in spot prices surging over 35% to date (see the chart: click here for a PowerPoint). Rising prices earlier this year have been attributed to the US President, Donald Trump, announcing wide-ranging tariffs which have upset global trade. On 2 September, the spot gold price hit $3508.50 per ounce, continuing its upwards trend.

The price has also been lifted by expectations that the Federal Reserve (the US central bank) will cut its key interest rate, making gold an even more attractive prospect for investors. If the Federal Reserve cuts interest rates, the price of gold usually increases. This is because gold does not pay any interest or yield, so when interest rates are high, investors can earn better returns from alternatives, such as savings accounts or bonds. However, when interest rates fall, those returns become less attractive, making gold relatively more appealing.

Lower interest rates also tend to weaken the US dollar, which makes gold cheaper for foreign buyers, increasing global demand. Since gold is priced in dollars, a weaker dollar usually leads to higher gold prices.

Additionally, interest rate cuts are often a response to economic problems or uncertainty. As gold is viewed as a safer asset for investors during times of economic uncertainty, investors will typically increase their demand.

Unlike the market for currencies or shares, gold doesn’t rely on the performance of a government or company. This makes it attractive when people are worried about things like inflation, recession, war or stock market crashes. Gold is thus seen as a ‘safe haven’.

Gold and the Federal Reserve

The rise in the price of gold by more than a third this year can be linked to the US election last year, according to the director of research at BullionVault (see the BBC article below). Attitudes of the Trump administration towards the Federal Reserve have created concerns among investors. Fears that the US administration could erode the independence of the world’s most important central bank have fuelled the latest flows into the metal, which is traditionally viewed as a hedge against inflation.

According to the BBC article, Derren Nathan from Hargreaves Lansdown claims that it is Trump’s ‘attempts to undermine the independence of the Federal Reserve Bank’ that were ‘driving renewed interest in safe haven assets, including gold’. Investors are concerned that a politicised Fed would be more inclined to cut interest rates than would otherwise be the case, sending long-term inflation expectations higher.

This could lead to fears that future interest rates would then be pushed higher. This would increase the yields on longer-term government bonds by pushing down their price, as investors demand higher compensation for the increased risk of higher future interest rates reducing the value of their fixed-rate investments. This would force the US Treasury to pay higher interest on new bonds, making it more expensive to service US government debt.

Expected price rises for 2026

As we saw above, it is predicted that the price of gold will rise to $4000 per ounce next year. However, if the market sees investors move away from dollar assets, such as US Treasuries, the price increases would be even higher. Daan Struyven, co-head of global commodities research at Goldman Sachs explains ‘If 1 per cent of the privately owned US Treasury market were to flow to gold, the gold price would rise to nearly $5000 per troy ounce’ (see Financial Times article below).

If the Federal Reserve does come under political pressure, it could affect the stability of the US economy and beyond. When gold prices rise sharply, demand usually falls in countries like China and India, which are the world’s largest buyers of gold jewellery. However, in 2025, this trend has changed. Instead of reducing their gold purchases, people in these countries have started buying investment gold, such as bars and coins, showing a shift in consumer behaviour from jewellery to investment assets.

At the same time, global events are also influencing the gold market. Suki Cooper, a metals analyst at Standard Chartered, said that events like Russia’s invasion of Ukraine have added to political uncertainty, which tends to increase demand for gold as a safe-haven asset. She also highlighted how changes in international trade policies have disrupted supply chains and contributed to higher inflation, both of which have made gold more attractive to investors. Additionally, a weaker US dollar earlier in the year made gold cheaper for buyers using other currencies, which boosted global demand even further.

Conclusion

Although the gold market is expected to remain strong over the next six months, some uncertainty remains. Many analysts predict that gold prices will stay high or even increase further, especially if interest rates in the US are cut as expected. Continued global instability, is also likely to keep demand for gold as a safe haven high. At the same time, if inflation stays elevated or trade disruptions continue, more investors may turn to gold to protect their wealth.

However, if economic conditions stabilise or interest rates rise again, gold demand could fall slightly, leading to a potential dip in prices. Overall, the outlook for gold remains positive, but sensitive to changes in global economic and political events.

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Questions

  1. What factors influence the price of a commodity such as gold on the global market?
  2. Use a demand and supply diagram to illustrate what has been happening to the gold price in recent months.
  3. Find out what has been happening to silver prices. Are the explanations for the price changes the same as for gold?
  4. Why might investors choose to buy gold during times of economic or political uncertainty?
  5. How will changes in interest rates affect both the demand for and the price of gold?
  6. What are the possible consequences of rising gold prices for countries like India and China, where there is a traditionally high demand for gold jewellery?
  7. How do global events impact commodity markets? Use gold as an example in your answer.
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Ticket resales – is it time to introduce a price cap?

Following the controversary over the sale of tickets for popular live events such as Taylor Swift’s Eras tour and the Oasis Live ’25 Tour, the government launched a consultation exercise in January 2025 on the resale of tickets. Titled, ‘putting fans first’, the exercise sought the views of individuals and organisations on a range of policy proposals. One of these was the implementation of a cap on the resale price of tickets.

The government is not only considering whether to implement a cap but also the level at which it might be set. The following question was included in the consultation exercise.

What is the maximum uplift that you think should be applied if ticket resales were to be subject to a price cap? Please state the reason for your selection.
 • no uplift at all
 • 10% or less
 • between 10 and 20%
 • between 20 and 30%
 • other – please state

Some platforms such as Twickets and Ticketswap already cap resale prices on their platforms at between 5 and 10 per cent above the face value of the ticket. They are, therefore, less likely to be affected by any new price regulation unless the ‘no uplift at all’ option is chosen. On other platforms, such as Viagogo and Stubhub, resellers are free to list tickets at whatever price they choose. This is often referred to as the uncapped market, and tickets for the Oasis tour with a face value of £150 were listed on these websites for £14 000. The implementation of a price cap is likely to have a big impact on this part of the resale market. The chief executive of StubHub stated in June 2025 that the business would probably have to exit the UK if a cap was introduced.

Although many fans dislike the uncapped secondary ticketing market, most economists take a more positive view. They see them as a way of facilitating mutually beneficial trade and helping to reallocate tickets to those with the highest willingness to pay. This reduces levels of allocative inefficiency/deadweight welfare loss in the market.

Economists also tend to argue against the use of price controls in competitive markets because of their negative impact on supply. If price controls reduce the available returns to sellers, they have an incentive to do something else with their time/resources i.e. switch to supplying other goods and services in markets not subject to price controls. This reduces supply in the regulated market and so could have a negative impact on consumer surplus.

What are the issues with the secondary market?

Given the benefits outlined by economists of having an uncapped secondary ticketing, why is the government considering the implementation of a price cap? One potential issue of having an uncapped secondary ticketing market is that developments in technology make it easier for professional resellers to buy very large quantities of tickets. This makes it increasingly difficult for fans who want to attend the event from being able to purchase a ticket.

Reports also suggest that professional resellers use illegal methods to both mass purchase and resell tickets. For example, to overcome any limits on sales imposed by the sellers in the primary market, some use automated software, fake IDs and multiple credit cards. Two people convicted of fraudulent trading in 2024 were found to have bought 47 000 tickets over a 212-year period, using 127 names and 187 different e-mail addresses.

Some resellers have also acted in ways that do not comply with consumer law when advertising tickets for sale. For example, not providing information such as the ticket number and other details about where the seat is located i.e. the block/area and row.

These rent seeking activities by professional resellers could outweigh the positive impact of uncapped secondary market on allocative efficiency.

Implementing a resale price cap would reduce the incentives for professional resellers to purchase large quantities of tickets and engage in these rent-seeking activities. However, in the consultation document the government recognises that the implementation of a resale price cap would be a ‘significant and complex intervention’.

An important implementation issue

To calculate the resale price cap for any live event, the original price of the ticket in the primary market needs to be known. This raises an interesting question – should the cap apply to the initial face value of the ticket or the total price the customer pays?

The face value of the ticket may only represent a proportion of the actual cost of buying a ticket because of the widespread use of drip pricing. This is the practice of applying additional fees as the consumer proceeds through the online purchasing process. These fees can sometimes add around 25 per cent and more to the price of a ticket. In the consultation document, the government suggested that the cap should apply to the face value of the ticket plus all compulsory fees.

One issue raised in the response to the consultation by the Competition and Markets Authority is that these fees are not always made clear by sellers in the primary market in a clear and transparent way. Therefore, for the policy to be effective, primary market sellers would have to make information on both ticket prices and any fees clearly and easily available. Recent changes to the law that prohibit drip pricing might help to address this issue.

The potential impact of a resale price cap on fraud

To avoid the price cap, there is a danger that increasing numbers of buyers and sellers stop using capped secondary ticket platforms, where activity is easier to observe/regulate, and switch to other non-specialist platforms where detection of illegal behaviour and enforcement of consumer law is more difficult. Examples of non-specialist platforms where sales might increasingly take place include Facebook Marketplace, Instagram Shop, X (formerly Twitter) and internet forums. With lower levels of consumer protection and the greater difficulty of detecting illegal behaviour, sales via these non-specialist platforms are more vulnerable to scams and fraud.

When referring to the impact of a resale price cap, the chief executive of StubHub argued that:

It will have a massive negative impact on consumers. It’s not like the demand is going to go away, it’s just going to move somewhere else, and that somewhere else is going to be the black market [where] consumers aren’t protected.

To test the hypothesis that price controls lead to greater incidences of fraud, one study used polling data to compare ticket fraud rates in the UK with Victoria, Australia and Ireland. In 2009, the state government of Victoria made it illegal for tickets to be resold for more than 10 per cent of their face, while the Irish government introduced the Sale of Ticket Act in 2021 that prohibited the resale of tickets above their original price. The study found that the proportion of respondents who reported being victims of ticket fraud over the previous two years was around four times higher in Victoria and Ireland than the UK. The most common sales channel where consumers experienced ticket fraud in all three countries were social media platforms.

Another example of the potential impact of the price cap in Ireland on fraud relates to the first ever regular-season NFL game that is being played in Dublin on 28 September 2025 between the Pittsburgh Steelers and the Minnesota Vikings. The online bank, Revolut, reported an 80 per cent increase in the number of ticket scams when tickets for this game went on sale.

In response to the consultation exercise, the Competition and Markets Authority backed the implementation of a resale price. It will be interesting to see if the government goes through with the measure in the next few months.

Consultation

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Questions

  1. Why might event organisers set ticket prices below the market clearing rate? Illustrate the impact of setting prices below market clearing rates on consumer, producer and total surplus in the primary market for tickets.
  2. Using a demand and supply diagram, explain how the uncapped secondary ticket market could reduce deadweight welfare loss. Discuss any assumptions you have made about the allocation of tickets among potential buyers in the primary market (i.e. sorting).
  3. Is it possible for professional resellers to continue making a profit if tickets are sold at market clearing rates in the primary market? Explain your answer.
  4. Under what circumstances would a maximum price set below the market clearing rate in a competitive market have a negative impact on consumer surplus? Draw a diagram to illustrate your answer.
  5. Using examples, explain what is meant by ‘rent seeking’ in economic theory.
    Outline some of the recent updates to the law on pricing information that businesses must show customers.
  6. What policies, other than a resale price cap, could the government introduce to try to address some of the issues with the ticketing market for live events?
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Rising UK energy prices

The UK energy regulator, Ofgem, has announced that the UK energy price cap will rise in October by an average of 2%. The energy price cap sets the maximum prices for electricity and gas that can be charged by suppliers to households. For those paying by direct debit, the maximum electricity price per kilowatt-hour (kWh) will rise from 25.73p to 26.35p, with the maximum daily standing charge rising from 51.37p to 53.68p. As far as gas is concerned, the maximum price per kWh will fall slightly from 6.33p to 6.29p, with the maximum daily standing charge rising from 29.82p to 34.03p. Ofgem estimates that this will mean that the capped cost to the average household will rise from £1720 to £1755.

The average capped cost is now much lower than the peak of £4279 from January to March 2023. This followed the huge increase in international gas prices in the aftermath of the invasion of Ukraine and the cutting off of gas supplies from Russia. Note that although the suppliers received these capped prices, average consumers’ bills were limited to £2500 from October 2022 to March 2024 under the government’s Energy Price Guarantee scheme, with suppliers receiving a subsidy from the government to make up the shortfall. But despite today’s cap being much lower than at the peak, it is still much higher than the cap of £1277 prior to Russia’s invasion of Ukraine: see Chart 1 (click here for a PowerPoint).

So is the capped price purely a reflection of the international price of gas, or is it more complicated? The picture is slightly different for gas and electricity.

Gas prices

As far as gas prices are concerned, the price does largely reflect the international price: see Chart 2 (click here for a PowerPoint).

The UK is no longer self-sufficient in gas and relies in part on imported gas, with the price determined in volatile international markets. It also has low gas storage capacity compared with most other European countries. This leaves it highly reliant on volatile global markets in periods of prolonged high demand, like a cold winter. Is such cases, the UK often has to purchase more expensive liquefied natural gas (LNG) from global suppliers.

Additionally, taxes, environmental levies and the costs of the nationwide gas distribution network contribute to the overall price for consumers. Changes in these costs affect gas prices. These are itemised below in the case of electricity.

With electricity pricing, the picture is more complex.

Electricity prices

Electricity generation costs vary considerably with the different methods. Renewable sources like wind and solar have the lowest marginal costs, while natural gas plants have the highest, although gas prices fluctuate considerably.

So how are consumer electricity prices determined? And how is the electricity price cap determined? The price cap for electricity per kWh and the daily standing charge for electricity are shown in Chart 3 (click here for a PowerPoint).

Marginal cost pricing.  The wholesale price of electricity in the UK market is set by the most expensive power source needed to meet demand on a day-by-day basis. This is typically gas. This means that even when cheaper renewables (wind, solar, hydro) or nuclear power generate most of the electricity, high gas prices can increase the cost for all electricity. The wholesale price accounts for around 41% of the retail price paid by households.

It also means that profits for low-marginal-cost producers could increase significantly when gas prices rise. To prevent such (low-carbon) suppliers making excess profits when the wholesale price is high and possibly making a loss when it is low, the actual prices that they receive is negotiated in advance and a contract is signed. These contracts are known as Contracts for Difference (CfDs). CfDs provide a fixed ‘strike price’ to low-carbon generators. The strike price is set so as to allow low-carbon generators to recoup capital costs and is thus set above the typical level of marginal cost. If the wholesale price is below the strike price, payments to generators to cover the difference are funded by amounts collected from electricity suppliers in advance using the CfD Supplier Obligation Levy. If the wholesale price is above the strike price, the difference is returned to consumers in terms of lower electricity bills.

Policy costs.  Electricity bills include an element to fund various social and environmental objectives. This element is also included in the cap. From October to December 2025, this element of the cap will be 11.3%. The money helps to subsidise low-carbon energy generation and fund energy efficiency schemes. It also funds the Warm Home Discount (WHD). In the October to December 2025 price cap, this amounted to a discount for eligible low-income and vulnerable households of £150 per annum on their electricity bills. The WHD element is included in the standing charge in the price cap. From October 2025, more generous terms will mean that the number of households receiving WHD will increase from 3.4 million to 6.1 million households. This is the main reason for the £35 increase in the cap.

Network costs.  These include the cost of building, maintaining and repairing the pipes and wires that deliver gas and electricity to homes. From October to December 2025, this element of the cap will be 22.6%.

Supplier business costs.  These include operating costs (billing, metering, office costs, etc.) and servicing debt. From October to December 2025, this element of the cap will be 15.4%.

Profit Allowance.  A small percentage is added to the price cap for energy suppliers’ profits. This is known as the Earnings Before Interest and Tax (EBIT) allowance and is around 2.4%. This has a fixed component that does not change when the overall price cap is updated and a variable component that rises or falls with changes in the cap.

Reliance on gas, low gas storage facilities, marginal cost pricing and the commitment to invest in low-carbon electricity and home heating all add to the costs of energy in the UK, making UK electricity prices among the highest in the world.

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Questions

  1. Why are the UK’s energy prices among the highest in the world?
  2. What are the arguments for and against subsidising wind power?
  3. What is the Contracts for Difference scheme in low-carbon energy. What CfDs have been awarded? Assess the desirability of the scheme.
  4. Is the capping of gas and electricity prices the best way of providing support for low-income and vulnerable consumers?
  5. How are externalities relevant in determining the optimal pricing of electricity?
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Rising global uncertainty and its effects

In a blog in October 2024, we looked at global uncertainty and how it can be captured in a World Uncertainty Index. The blog stated that ‘We continue to live through incredibly turbulent times. In the past decade or so we have experienced a global financial crisis, a global health emergency, seen the UK’s departure from the European Union, and witnessed increasing levels of geopolitical tension and conflict’.

Since then, Donald Trump has been elected for a second term and has introduced sweeping tariffs. What is more, the tariffs announced on so-called ‘Liberation Day‘ have not remained fixed, but have fluctuated with negotiations and threatened retaliation. The resulting uncertainty makes it very hard for businesses to plan and many have been unwilling to commit to investment decisions. The uncertainty has been compounded by geopolitical events, such as the continuing war in Ukraine, the war in Gaza and the June 13 Israeli attack on Iran.

The World Uncertainty Index (WUI) tracks uncertainty around the world by applying a form of text mining known as ‘term frequency’ to the country reports produced by the Economist Intelligence Unit (EIU). The words searched for are ‘uncertain’, ‘uncertainty’ and ‘uncertainties’ and the number of times they occur as percentage of the total words is recorded. To produce the WUI this figure is then multiplied by 1m. A higher WUI number indicates a greater level of uncertainty.

The monthly global average WUI is shown in Chart 1 (click here for a PowerPoint). It is based on 71 countries. Since 2008 the WUI has averaged a little over 23 000: i.e. 2.3 per cent of the text in EIU reports contains the word ‘uncertainty’ or a close variant. In May 2025, it was almost 79 000 – the highest since the index was first complied in 2008. The previous highest was in March 2020, at the start of the COVID-19 outbreak, when the index rose to just over 56 000.

The second chart shows the World Trade Uncertainty Index (WTUI), published on the same site as the WUI (click here for a PowerPoint). The method adopted in its construction therefore mirrors that for the WUI but counts the number of times in EIU country reports ‘uncertainty’ is mentioned within proximity to a word related to trade, such as ‘protectionism’, ‘NAFTA’, ‘tariff’, ‘trade’, ‘UNCTAD’ or ‘WTO.’

The chart shows that in May 2025, the WTUI had risen to just over 23 000 – the second highest since December 2019, when President Trump imposed a new round of tariffs on Chinese imports and announced that he would restore steel tariffs on Brazil and Argentina. Since 2008, the WTUI has averaged just 2228.

It remains to be seen whether more stability in trade relations and geopolitics will allow WUI and WUTI to decline once more, or whether greater instability will simply lead to greater uncertainty, with damaging consequences for investment and also for consumption and employment.

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Uncertainty Indices

Questions

  1. Explain what is meant by ‘text mining’. What are its strengths and weaknesses in assessing business, consumer and trade uncertainty?
  2. Explain how the UK Monthly EPU Index is derived.
  3. Why has uncertainty increased so dramatically since the start of 2025?
  4. Compare indices based on text mining with confidence indices.
  5. Plot consumer and business/industry confidence indicators for the past 24 months, using EC data. Do they correspond with the WUI?
  6. How may uncertainty affect consumers’ decisions?