In a statement to the House of Commons on 9 February 2011, the Chancellor announced that banks would extend their new lending to SMEs (Small and Medium-Sized Enterprises) from £179 billion in 2010 to £190 billion in 2011. An important question is the extent to which this initiative, which forms part of a series of initiatives in conjunction with the banking sector known as Project Merlin, will impact on economic activity.
Let’s begin by thinking about the role that credit plays in an economy. Firstly, it serves a short-term role by enabling individuals and firms to ‘bridge the gap’ between their income and their spending. Secondly, it can, depending on the size and terms of the credit, help to fund longer-term investments. In the case of firms, for instance, it can help to fund capital projects such as an expansion of premises or the installation of new equipment or production processes.
The extension of credit is the main source of growth in the money supply. If the credit which is extended by financial institutions is spent it increases economic activity. The size of the increase in economic activity will depend on how many times the credit is passed on from one firm or individual to the next. In other words, it depends on the velocity of circulation of money – often referred to simply as V. If the initial credit funds a series of purchases and the recipients of these monies, i.e. those from whom the purchases are made, then use their increased deposits to fund purchases themselves, the expansion could be sizeable.
There is every indication that the additional credit for SMEs will be welcome and it seems reasonable to assume that this will positively impact on spending. But, by how much is not entirely clear. This is what fascinates me about macroeconomics, but, perhaps understandably, may well frustrate others! Once the payments for the purchases made using the newly available credit become new deposits, how will these recipients respond? Will other credit-constrained firms use this liquidity to engage in purchases themselves? But, what if these recipients use the monies to increase or rebuild their own financial wealth? In this last scenario – a pessimistic scenario – the velocity of circulation will increase relatively little and economic activity little too.
The corporate sector, of course, does not exist in isolation of other sectors of the economy and, in particular, of the household sector. As some of the income from the expanded credit flows to them in the form of factor payments (i.e. wages and profits) – though by how much is itself debtable – how will they respond? Again will credit-constrained households look to spend? Alternatively, will they hold on to these liquid balances perhaps using them as buffer-stock savings? This is not an unrealistic possibility given the leverage of households and the need to rebuild wealth, especially so in times of incredible economic uncertainty? But, who knows!
So while Merlin may have waved his wand, the full extent of its impact, though probably positive, is far from clear. Time will tell. Isn’t macroeconomics wonderful!
HM Treasury Press Release
Government welcomes banks’ statement on lending by 15% more to SMEs, and on pay and support for regional growth, HM Treasury, 9 February 2011
Statement to the House of Commons by the Chancellor
Statement on banking by the Chancellor of the Exchequer 9 February 2011
Articles
Banks sign lending and bonus deal BBC News (9/2/11)
Banks agree Project Merlin lending and bonus deal BBC News (9/2/11)
Osborne’s plans arrive too late for the economy Independent, Sean O’Grady (11/2/11)
Project Merlin ‘could weaken UK banks’ Telegraph, Harry Wilson (11/2/11)
Nothing wizard about Project Merlin Guardian UK, Nils Pratley (7/2/11)
Softball: Britain’s banks make peace with the government – for now The Economist (10/2/11)
Smaller firms insist banks must change their attitude The Herald (11/2/11)
Questions
- Detail the various roles that financial institutions play in a modern-day economy.
- Do the activities of banks carry with them any risks? How might such risks be reduced?
- What is meant by the velocity of circulation or the velocity of money?
- What factors do you think could affect the velocity of money?
- How does credit creation affect the growth of the money supply?
- What do you understand by individuals or firms being credit-constrained?
- What factors are likely to affect how credit-constrained an individual household is?
- What do you think might be meant by buffer-stock saving? What might affect the size of the buffer-stock held by a household?
In two recent blogs we have analysed the headache facing the Monetary Policy Committee, given the persistence of inflationary pressures in the UK economy, in deciding whether to raise interest rates. In Food for thought, Elizabeth Jones describes how, despite the weakness of aggregate demand, cost pressures have fuelled inflation while John Sloman in Time for a rise in Bank Rate looks at the difficult judgement call for the MPC in risking a marked dampening of aggregate demand by raising rates while, on the other hand, failing to dampen inflationary expectations by not raising rates. In this blog Dean Garratt analyses some of the latest inflation figures as detailed in the latest Consumer Price Indices Statistical Bulletin. In particular, he focuses on the inflation rates within the overall consumer price inflation rate.
You might be wondering what we mean when we refer to inflation rates within the overall inflation rate. In answering this we need to consider how the Office for National Statistics goes about estimating the Consumer Price Index (CPI) and the CPI inflation rate (further details are available in Consumer Price Indices – A Brief Guide produced by the ONS). In order to compile the Consumer Price Index (CPI), each month an organisation collects on behalf of the ONS something in the region of 110,000 prices quotations for around 560 items. But, the key point is that these goods and services fall into one of 12 broad product groups which are referred to as level 1 product groups. These include, for example, food and non-alcoholic beverages and transport.
The items included in each of the 12 product groups are reviewed once a year so that the chosen items remain representative of today’s spending patterns. Once the price information for our representative goods and services has been collected, the prices are compared with their levels in the previous January and the change recorded. These changes are then aggregated in both each product group and across all groups. The price changes are aggregated by weighting them according to the typical share of household spending that each good or service represents. This process is repeated each month in the year so as to always calculate the aggregate change in prices since January. The final step is to link the price changes with those from earlier years to form one long price index, both for each product group and for the overall shopping basket, so that at one arbitrary moment in time the index takes a value of 100.
Once we have our price indices we can calculate annual rates of price inflation. The annual rate of CPI inflation in December 2010 is recorded at 3.7%. This means that the Consumer Price Index was 3.7% higher in December 2010 than it was December 2009. Similarly, the annual rate of CPI inflation in November 2010 of 3.3% means that consumer prices rose by 3.3% between November 2009 and November 2010. Across 2010 as a whole the CPI rose by 3.3%, so in excess of the Bank of England’s inflation rate target range, and significantly up on the 2.2% across 2009. The Bank has a symmetrical inflation rate target of 2% plus or minus 1 percentage point (you may want to read more about the Bank’s Monetary Policy Framework).
Let’s look to delve deeper because price indices are also available for product groups at two lower levels known as level 2 and level 3 product groups. For example, from within the food and non-alcoholic beverages group there is a price index wholly for food and within this one for vegetables. Again annual rates of price inflation can be found for level 2 and level 3 product groups.
If we consider food and non-alcoholic beverages we find an annual rate of price inflation for December of 6.1%. This was its highest annual rate since May 2009. Across 2010 as a whole we find that prices rose by 3.4%, very much in accordance with the overall CPI inflation rate. Inflationary pressures within this category are not new with 2008 seeing prices rises by 9.1% as compared with 3.6% for the overall CPI inflation rate. Over the past 5 years, food and non-alcoholic beverage inflation has typically been running at an annual rate of 5% while overall consumer price inflation has been running at 2.8%.
If we now focus on food alone, we find an annual rate of food price inflation in December of 5.7%. While this is a little lower than with the inclusion of non-alcoholic beverages, it is nonetheless a full 2 percentage points above the overall CPI inflation rate. Across the year as a whole food price inflation comes in bang on 3% highlighting the extent of the inflationary pressures in more recent months. This, however, still falls some way short of the pressures seen in 2008 when food prices rose by 10.1%. If we drop to level 3 to focus on groups within the food category we find inflation rates for oils and fats of 11%, for fish of 9% and for fruit of 8.6%.
Within the 12 broad groups the highest annual rate of price inflation is currently to be found for transport where the annual rate of price inflation in December was 6.5%. Across 2010, transport prices rose by 8.3% which compares a tad unfavourably with the 0.8% increase seen in 2009. If we drop down to the level 3 groups within this category we can trace the source of the price pressures more readily. The cost of air passenger transport in December was up over 12 months by 13.5% and, you may not be surprised to learn, the cost of fuel and lubricants was up by 12.9%.
We finish by noting the only level 1 category to see prices fall across 2010: clothing and footwear. This product group saw prices fall by 1% in 2010. But, even here price pressures have emerged. Between April 1992 and August 2010 clothing and footwear consistently recorded annual rates of price deflation. Since September this has ceased with positive annual rates of inflation. The annual rate of inflation for clothing and footwear in December was estimated at 1.5%. Perhaps those socks in my bottom drawer really will have to last me just a little bit longer!
Articles
Inflation is a blip says Bootle BBC News (21/1/11)
Fuel prices could rise by 4p in April BBC News (22/1/11)
Paul Lewis: Why inflation is starting to buy BBC News (20/1/11)
High levels of inflation remains a worry for Beijing BBC News (20/1/11)
Inflation ‘biggest money worry for families’ BBC News (19/1/11)
UK inflation rate rises to 3.7% BBC News (18/1/11)
Inflation hysterics Financial Times (19/1/11)
Top investors raise alarm on inflation Financial Times, Richard Milne, Dan McCrum and Robert Cookson (21/1/11) )
Inflation hits 3.7% after record monthly increase Guardian UK, Graeme Wearden (18/1/11)
We knew inflation would be bad, but not this bad Guardian, Larry Elliott (18/1/11)
The mystery of clothes inflation and the formula effect The Economist (21/1/11)
Data
Latest on inflation Office for National Statistics (18/1/11)
Consumer Price Indices, Statistical Bulletin, March 2010 Office for National Statistics (18/1/11)
Consumer Price Indices, Time Series Data Office for National Statistics
For CPI (Harmonised Index of Consumer Prices) data for EU countries, see:
HICP European Central Bank
Questions
- Describe the process of compiling the Consumer Price Index (CPI). Are we comparing the cost of the same basket of goods and services across years? What about within a given year? (Further details are available in Consumer Price Indices – A Brief Guide).
- Explain the difference between an increase in the level of prices and an increase in the rate of price inflation. Can the rate of price inflation fall even if price levels are rising? Explain your answer.
- Why do you think policy-makers, such as the Monetary Policy Committee, would be interested in the inflation rates within the overall CPI inflation rate?
- What factors do you think lie behind the pressures on; (i) food prices; (ii) clothes prices; and (iii) transport prices? How would your answers help to inform how you would vote on interest rates if you were on the Monetary Policy Committee?
- The following are the consumer price index values for all items, food and non-alcoholic beverages, clothing and footwear and transport in 1988, 2009 and 2010. Use these values to calculate the percentage change between 1988 and 2010 and those between 2009 and 2010. Comment on your findings.
All items: 1988= 63.5; 2009= 110.8; 2010= 114.5
Food and non-alcoholic beverages: 1988= 68.2; 2009= 123.2; 2010= 127.4
Clothing and footwear: 1988= 163.8; 2009= 79.6; 2010= 78.8
Transport: 1988= 55.4; 2009= 112.7; 2010= 122.1
- How serious an economic issue do you think inflation is? Illustrate your answer drawing on real-world examples of the impact of inflation.
I have something of an admission to make: I love data. I suppose it goes back to my time working as a civil servant. My job was to brief on the latest data releases relevant to the household sector and to try to interpret what the latest numbers might be telling us. It meant that on one day I might be briefing about the latest household spending numbers and the next on house prices. It was not only great fun but it also helped my understanding of economics and, importantly, my understanding of the issues and topics that economists wrestle with. Data help to give context perhaps by placing current outcomes, such as the latest high street sales figures, in an historical context or by enabling international comparisons, such as comparing UK consumer behaviour to that across the Channel in France. These days I spend my time teaching, but I retain my passion for data and I do all that I can to convey this to those I teach. So, what I thought we would do here is to look at a few numbers relating to UK households, show that we need not be frightened by them, and show how they can help to paint a picture of the current economic behaviour of the UK consumer.
My first teaching week back this academic term began by talking to students about consumer spending. I think it’s important that those new to economics and learning about household spending behaviour have a sense of how much UK households spend, how this varies, and why how much the sector spends is important. Let’s begin with the household spending figure for 2009 – the 2010 figure will not be available for a couple of months. By going to the latest release of the Quarterly National Accounts we discover that UK households spent £874 billion in 2009. Though a big enough figure in its own right, it is actually 2% less than the £892 billion in 2008. But, more than this, remember that these are nominal values reflecting the prices of 2008 and 2009. The average price of household consumption goods and services rose by 1.3% between these two years which, if we eliminate, means that the volume of consumer spending fell by 3.3%.
To convince anyone that patterns in household spending do matter is pretty straightforward. One way of doing this is to consider household spending relative to GDP, i.e. the value of our country’s output. If we return to latest Quarterly National Accounts we discover that GDP in 2009 is estimated at £1.39 trillion. So with household spending of £874 billion and total output of £1.39 trillion we can readily see the value of households as purchasers of this output. To be more specific, household spending in 2009 was equivalent to some 63% of GDP. This is one of the reasons why economists pay so much attention to trying to interpret the spending patterns of households – one of my old jobs – and, of course, trying to predict the future path of household spending.
You might be wondering about more recent patterns in household consumption since, after all, 2009 now seems quite a while ago. Well, in the third quarter of 2010 household spending was estimated at £232.3 billion and if we add to this the revised figures for the previous three quarters we get a 4-quarter total of £910.4 billion. For many analysts though the key numbers relate to the growth in the volume of household spending. In Q3 2009 real household spending grew by 0.3%. Whilst the first quarter of 2010 saw spending volumes decline by 0.1%, Q3 was the second consecutive quarter in which spending volumes increased. The concern, however, was that the 0.3% growth in Q3 was down on the 0.8% growth in Q2. We wait with much interest the Q4 figure.
When I talk to students about the determinants of household spending many, quite naturally, will point to the importance of disposable income. Again let’s return to the Quarterly National Accounts. In 2009 the disposable income, i.e. post-tax income, of the household sector was estimated at £942.2 billion. That’s another big number. Let’s put that alongside our spending number for households of £874.4 billion and we have an average propensity to consume (APC) out of disposable income of 0.92 which compares with 0.97 in 2008 and 0.98 in 2007. This suggests that households were inclined to do other things with their income in 2009 than just merely spend it. We observe this too if we take note of the real changes in consumption and income in 2009. After removing the impact of price changes, we find that while consumption volumes fell by 3.3%, the spending power of the sector’s disposable income actually rose by 1.1%.
But, what of more recent patterns in disposable income? Well, disposable income in Q3 2010 is estimated to have been £244.3 billion which with consumption of £232.3 billion equates to an average propensity to come out of disposable income of 0.95. If we again add the Q3 disposable income number to those from the previous three quarters we have a 4-quarter disposable income figure of £964.4 billion which gives us an average propensity to consume over this period of 0.94 and, hence, a tad higher than 2009, albeit not at the levels of 2007 and 2008. Meanwhile, real disposable income rose by 1.1% in Q3 following a 2% decline in Q2. The quarterly disposable income series is a notoriously volatile series and the recent past has seen no change in that. Perhaps the key fact though is that the real value of the household sector’s disposable income in Q3 2010 was 1.5% lower than it was a year earlier. Hence, while real disposable income grew across 2009, it is likely to have fallen across 2010.
So why did household spending fall so markedly in 2009 despite the rise in disposable income. It is likely that the impact of the financial crisis, the subsequent recession and a sense of uncertainty amongst households will have been contributory factors. One way in which these factors seems to have affected UK households is in their desire to reduce their exposure to debt. So we end with a few numbers, some a little eye-watering, which relate to household debt and demonstrate the attempt by households to improve their financial positions.
Figures from the Bank of England contained within Table 3 of their statistical release lending to individuals show that at the end of November 2010 households had a stock of debt of £1.454 trillion, not too dissimilar a number to that for GDP! But, this is £5.6 billion less than at the end of November 2009. The main reason for this is the sector’s repayment of unsecured debt, such as credit card debt and overdrafts. Unsecured debt fell by £13.4 billion over the year to stand at £214.1 billion.
The remaining £1.24 trillion of household debt is secured debt and so debt secured against property. This has risen by £7.7 billion over the 12 months to November. But, it would be a mistake to believe that because the overall stock of mortgage debt hasn’t fallen that households are not trying to paying it off. How can this be, you might ask? The answer lies in the growth of housing investment relative to that of mortgage debt. Housing investment relates, in the main, to the purchase of brand new homes and to major home improvements. As our population grows and the housing stock expands and as we spend more on improving our existing housing stock we acquire more mortgage debt. However, the Bank of England figures shows that housing investment has been greater than new secured lending. In other words, the additions to the stock of lending have been less than housing investment.
In Q3 the Bank of England estimates an increase of housing equity of £6.1 billion. Negative housing equity withdrawal (HEW), an injection of housing equity, has become something of a new norm dating back to when the UK economy went into recession in Q2 2008. Since then, the UK household sector has injected some £49.7 billion of housing equity. This, of course, comes at a potential cost for the economy because by increasing equity in property households are using money that cannot be used to fund current consumption or to purchase financial assets. The extent of this negative HEW over the past 10 quarters has been the equivalent to 2.1% of disposable income.
So that ends my tour of the household sector through numbers. Hopefully, the numbers have helped to paint a picture of the importance of the household sector for the economy and to make you think about some of the variables that affect the sector’s behaviour. Given these interesting economic times, painting by economic numbers has never been so much fun!
Articles
Mortgage debt falls for the 10th quarter in a row BBC News (29/12/10)
Homeowners make record mortgage repayments Independent, Hugo Young (30/12/10)
Homeowners reduce their mortgages by £6bn in just three months Telegraph, Louise Armistead (30/12/10)
Homeowners paying off mortgages at faster rate Guardian, Jill Insley (29/12/10)
Homeowners paying back mortgages at rapid rate Daily Mail (29/12/10)
Christmas trading hit by snow, says BRC Financial Times, Chris Giles (11/1/11)
Festive freeze hits sales across the high street Independent, James Thompson (11/1/11)
Shoppers hit hard by inflation Independent (12/11/10)
Families warned by Bank of England of even more painful year ahead Daily Mail, Lucy Farndon (28/12/10)
Shop inflation accelerated in December on commodities, retailers say Bloomberg, Svenja O’Donnell
Data
Lending to individuals statistical release Bank of England
Housing equity withdrawal (HEW) statistical release Bank of England
Latest on GDP growth Office for National Statistics (22/12/10)
Quarterly National Accounts, 3rd Quarter 2010 Office for National Statistics (22/12/10)
UK Economic Accounts, Time Series Data Office for National Statistics
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission
Questions
- What factors do you think affect consumer spending in the short-term, say over a three-month period? Would the same factors be important if we were looking at spending patterns over a longer period of time?
- Consumers are sometimes described as consumption-smoothers which means that they look to smooth their profile of spending in the face of volatile incomes. What factors do you think affect their ability to do this?
- Would you expect the relationship between consumption and income to be consistent and predictable? Explain your answer.
- Why do you think real spending values fell in 2009 despite real disposable income rising? Does this mean that households are not in fact consumption-smoothers?
- The financial system enables households to accumulate financial assets, financial liabilities and to acquire housing wealth. How might these three variables impact on household spending?
- Illustrate with examples what is meant by secured and unsecured debt. Does the long-term accumulation of stocks of these debts have any consequences for household spending?
- What do you understand by the term housing equity withdrawal? What is meant by negative HEW and which the UK has observed for the past ten quarters?
- What factors might help to explain the ten consecutive quarters of negative HEW? Would you expect things to change in the near future? Explain your answer.
- What is the opportunity cost of positive housing equity withdrawal (HEW)? What about the opportunity cost of negative HEW?
- To what extent do you think household spending affects economic growth? Is household spending a long-term driver of economic growth?
Bank rate in the UK has been at the historically low level of 0.5% since March 2009 and the MPC decision on 13 January was to leave the rate unchanged (see also). But inflation has been well above the Bank of England’s target of 2% since December 2009 and it could well rise further as international commodity prices are soaring. Some economists are thus arguing that Bank rate should rise. This is crucial, they say, to dampen inflationary expectations.
Other economists, however, argue that aggregate demand is likely to remain depressed and that the economy is operating with a large negative output gap. What is more, house prices are falling, as are real wages (see Bosses gain – workers’ pain)
In the following extract from BBC Radio 4’s Today Programme, two economists, Charles Goodhart and Willem Buiter, both former members of the MPC, debate the issue.
Podcast
Should interest rates rise? BBC Today Programme (13/1/11)
Data
Economic and Labour Market Review, Office for National Statistics (For inflation data see Tables Chapter 3, Table 3.01; for interest rates see Tables Chapter 5, Table 5.08)
Monetary Policy Committee Decisions Bank of England
Questions
- What are the arguments for a rise in Bank rate at the current time?
- What are the arguments against a rise in Bank rate at the current time?
- What information would you require to decide which of the arguments was the more powerful?
- Why is it difficult to decide the size of the output gap?
- To what extent do the arguments for and against a rise in Bank rate depend on the factors determining expectations, and what expectations are important here?
- To what extent are exchange rates relevant to the effectiveness of interest rate policy?
One of the key economic issues in 2010 has been the state of countries’ public finances. We take one final look this year at the latest state of the UK public finances in light of the latest release of Public Sector Finances from the Office for National Statistics. In doing so we will be updating our blog of 20th November – What’s £81.6 billion and still rising?.
Well, a good place to start is to up-date you on the amount of net borrowing. This is the amount by which public sector expenditure exceeds current receipts, almost entirely taxation revenues. After adjusting for the impact of temporary ‘financial interventions’ or policies to provide stability for the financial system, the amount of net borrowing in November was a record high £23.3 billion. Therefore, the amount of net borrowing since April and so the start of the financial year rose from over £81 billion in October – and the reason for the title of the earlier blog – to £104.4 billion in November. This is roughly the same as in the first eight months of financial year 2009/10 when we had amassed net borrowing of £105.1 billion.
In the first eight months of the last two financial years monthly net borrowing has averaged close on £13 billion. The government’s independent economic forecaster the Office for Budget Responsibility (OBR) released its Economic and Fiscal Outlook at the end of November. The OBR is forecasting that over the entire financial year the amount of net borrowing will be £148.5 billion or the equivalent of 10% of GDP.
The public-sector current budget balance measures whether the public sector is able to afford its current expenditures. This balance was an important indicator under the previous Labour government of whether it was meeting its Golden Rule whereby over the economic cycle it should be able to its afford current expenditures and any borrowing would be for net investment, i.e. capital expenditures giving rise to a stream of benefits over time. Therefore, the current budget balance compares revenues with current expenditures, including the wages of public sector staff, welfare payments and expenditures on inputs consumed in the current financial year. The public sector’s current budget (excluding financial interventions) was in deficit in November by £20.0 billion.
In the financial year to date, the current budget deficit has reached £83.2 billion almost identical to the total in the previous financial year. This means that the average monthly current budget deficit over the first eight months of the last two financial years has been £10.4 billion. The OBR is forecasting that there will be a deficit on the current budget in 2010-11 of £106.2 billion, the equivalent of 7.2% of GDP
Finally, we update the public-sector net debt total. The public sector’s net debt is its stock of debt less its liquid financial assets (largely foreign exchange reserves and bank deposits). As of the end of November, the stock of net debt (excluding the impact of the financial interventions) stood at £863 billion, equivalent to 58% of GDP. The stock of debt at the end of the last financial year stood at £772 billion, equivalent to 54% of GDP. The OBR expects it to increase to £922.9 or 60.8% by the end of this financial year.
The extent of the increase in the stock of public sector net debt is very clearly illustrated illustrated if we compare the latest numbers with those at the end of 2006/7 and so before the financial crisis really took hold. Back then, the stock of debt stood at £498 billion or 36% of GDP and so the last government was meeting it sustainable investment rule by keeping net debt below 40% of GDP. Both the sustainable investment rule and the golden rule were to be abandoned during 2008 as the financial crisis took grip.
If we add back the impact of the financial interventions, most notably the balance sheet effects of public sector banks, including Northern Rock, then the stock of public sector net debt at the end of November was £971 billion or 65.1% of GDP. This means that the actual stock has almost doubled since March 2007. It is perhaps little surprise that the government is introducing the Bank Levy in 2011 which, in large part, is being designed to acknowledge the external costs that the banking system can cause to the wider economy and, of course, to the public finances.
Articles
Public borrowing soars to £23.3bn record high Independent, Nick Clark (22/12/10)
UK borrowing hits new record high as government spending jumps Telegraph, Emma Rowley (21/12/10)
Government borrowing hits record high Herald, Douglas Hamilton (22/12/10) )
Public borrowing: What the economists are saying Guardian (22/12/10)
Shock as govt borrowing hits record high Sky News, James Sillars (21/11/10)
Record UK borrowing raises concerns Financial Times, Daniel Pimlott (21/12/10)
UK government borrowing hits record high BBC News (21/12/10)
City shocked as government borrowing hits record high Scotsman, Natalie Thomas (22/12/10)
Data on UK Public Finances
Latest on Public Sector Finances Office for National Statistics (21/12/10)
Public Sector Finances Statistical Bulletin, November 2010 Office for National Statistics (21/12/10)
Public Sector Finances (First Release) Time Series Data Office for National Statistics
Statistics on Public Finance and Spending HM Treasury
Questions
- Give examples of variables which are stock concepts and those which are flow concepts. Is public sector net borrowing a stock or flow concept? What about public sector net debt?
- Give examples of public expenditures which are examples of current expenditures and examples of those which are capital expenditures?
- What arguments could you put forward for and against the previous Labour government’s golden rule? What about its sustainable investment rule?
- Explain the difference between the current budget balance and net borrowing. Why might governments want to measure both these budget balances?
- What arguments would you make for and against a rapid reduction of the level of net borrowing by the UK public sector?