Glossary: UK indicators

The importance of each indicator for the foreign exchange and bond markets is marked out of five in parentheses. So (1/3) means that an indicator is very important for foreign exchange and reasonably important for the bond market.

Building society net new commitments
CBI distributive trades
CBI industrial trends
Global trade; non-EU trade balance
Gross domestic product
Housing starts
Industrial output
M4 money supply
Manufacturing output
Net consumer credit
Official reserves
Producer input prices
Producer output prices
Public sector borrowing requirement
Purchasing managers index
Retail price index; underlying RPI
Retail sales
Underlying average earnings growth
Unemployment
Unit wage costs
Vacancies

Underlying average earnings growth (monthly) (1/1)

A good indicator of future inflation, because higher earnings cause price rises if they are not matched by increases in productivity.
The Bank of England used to argue that any yearly increase above 4.5% jeopardised the government-set inflation target. But after the way the figures are complied was changed a few months ago, it is uncertain whether the Bank still holds this view.
This figure is a seasonally-adjusted version of actual earnings growth. The numbers are based on payments actually made, as opposed to those which accrue on paper. They allow for any arrears or advances in payment, which can result from pay negotiations or industrial disputes.

Producer output prices (monthly) (2/1)

An indicator which presages inflation. It measures price pressures from the supply-side of the economy. The core measure excludes food, drink, tobacco and petroleum which are considered volatile. Producer output prices may not be transmitted to retail prices if shops absorb price rises by reducing their margins.

CBI industrial trends survey (monthly) (2/2)

A survey by the Confederation of British Industry, the main UK employers' association, on conditions in the industrial sector. It is less comprehensive than official statistics and more angled towards business sentiment. This means that it is often a poor guide to the economy's future prospects.

Purchasing managers index (monthly) (2/2)

Monthly report by the Chartered Institute of Purchasing and Supply. The PMI is based on a weighted average of seasonally adjusted measures of output, new orders, suppliers' delivery times, stocks of items purchased and employment. The measures are turned into indices which vary around 50%, a level which indicates no change on the previous month. An index reading below 50% indicates a decline compared with the previous month, above 50% an increase. It is a leading indicator of output growth.

Retail sales (monthly) (3/2)

An indicator of future consumption. The monthly figures are volatile. The 3-month average is a better guide. If consumption grows faster than production, this can lead to inflation.

Producer input prices (monthly) (3/2)

An early indicator of price pressures. The core measure excludes food, drink, tobacco and petroleum which are considered volatile. Producer input price rises may be absorbed within the industrial sector and thus not transmitted to output price inflation.

Manufacturing output (monthly) (3/2)

A leading indicator of economic growth. It is becoming less and less useful as the manufacturing sector shrinks to less than 20% of GDP.

Retail price index; underlying RPI (monthly) (3/2)

The retail price index measures change in the price of a basket of goods in the shops. It is the most widely-used measure of inflation.
The government has a 2.5% target for underlying retail price inflation, which excludes mortgage interest payments.
The underlying measure is used because higher interest rates are used to curb inflation. But they also raise mortgage interest payments, increasing the headline rate of inflation. Thus the cure for inflation can worsen the problem, especially if wage settlements are based on the higher headline rate.

Unemployment (monthly) (3/3)

The claimant count at job centres. If this is low, future wage pressures could be high, causing inflation.

CBI distributive trades (monthly) (3/3)

A survey by the Confederation of British Industry, the main UK employers' association, on conditions in shops. It is less comprehensive than official statistics and more angled towards business sentiment, often a poor guide to the economy's prospects.

Global trade; non-EU trade balance (monthly) (3/4)

The difference between exports and imports. Much less important than in the past, as trade is dwarfed by investment flows. Trade deficits can thus be easily financed and are a poor guide to future exchange rate movements.
The volume of imports measures the strength of the consumer recovery, while the volume of exports can contribute significantly to a production recovery.

Industrial output (monthly) (4/3)

Manufacturing output plus sectors such as mining (including oil and gas production) and the utilities (water, electricity). An indicator of future economic growth, but increasingly unrepresentative as services make up over 60% of the economy.

M4 money supply (monthly) (4/3)

M4 is the broadest measure of the amount of money in the economy. It is the sum of:

• Money held in notes and coins;
• The total amount lent by banks, to individuals, companies and other banks;
• The total amount of money borrowed by the government.

Monetarists believe that money supply growth is a good predictor of future inflation. However, this correlation has become unreliable since the financial liberalisation of the eighties.

Public sector borrowing requirement (PSBR) (monthly) (4/3)

Central government's budget deficit. A negative deficit, or budget surplus, is known as a public sector debt repayment.
This figure is not particularly important, as the government is not explicitly aiming to meet the Maastricht criteria. Its link with inflation is weak.

Gross domestic product (GDP) (quarterly) (4/4)

Gross domestic product is the UK's total output. It is not particularly important because the market already knows most of the information about output growth. It is also unreliable, as it is often revised after its release.

Unit wage costs (monthly) (4/4)

Unit wage costs measure the cost of labour. If wage rises outpace productivity growth, unit wage costs will rise, causing inflation.

Vacancies (monthly) (4/4)

Job vacancies at government job centres are one measure of the labour market. They are not very reliable as many jobs are not advertised in job centres.

Net consumer credit (monthly) (5/5)

The amount of money that individuals borrowed in the previous month. A high figure may indicate that the economy is overheating, as consumers borrow in order to live beyond their means.

Official reserves (monthly) (5/5)

The government's reserves of gold and other countries' currency. Of very little interest to the bond or foreign exchange markets.

Housing starts (monthly) (5/5)

The number of new houses on which building has started. An indicator of how willing people are to spend a lot of money on a new house. House price inflation often precedes retail price inflation.

Building society net new commitments (monthly) (5/5)

The amount of money that building societies (savings and loans in the US) have lent. Most of this lending is accounted for by mortgages. This figure is part of M4, and indicates activity in the housing sector.
A housing boom often precedes a consumer boom as most of the wealth of UK residents is tied up in their houses. The figure is thus an indicator of future inflation.