When economists talk about ‘measurement’ they tend to refer to metrics that can capture changes in quantity, quality and distribution of goods and services. In this paper we argue that the digital transformation of the economy, particularly the rise of cloud computing as a general-purpose technology, can pose serious challenges to traditional concepts and practices of economic measurement. In the first part we show how quality-adjusted prices of cloud services have been falling rapidly over the past decade, which is currently not captured by the deflators used in official statistics. We then discuss how this enabled the spread of data-driven business models, while also lowering entry barriers to advanced production techniques such as artificial intelligence or robotic-process-automation. It is likely that these process innovations are not fully measured at present. A final challenge to measurement arises from the fragmentation of value chains across borders and increasing use of intangible intermediate inputs such as intellectual property and data. While digital technologies make it very easy for these types of inputs to be transferred within or between companies, existing economic statistics often fail to capture them at all.

Since the war the economies of some developed countries appear to have been growing exceptionally fast (table 1, chart 1). From 1950 onwards six countries have shown growth rates of 3 to 6 per cent; four of these have shown rates of over 3 per cent since 1954, by which time the effects of post-war recovery might be expected to have been over. These rates are nearly all more than twice as high as the long-term averages of the countries concerned. Does this imply that they are some kind of spurt rates which will inevitably revert, sooner or later, to more ‘normal’ rates of growth?

The (1990) regulations for Youth Training (YT) combined with the introduction of assessment to NVQ standards have led to a significant reduction in the amount of mathematics taught to young building trainees compared both to the previous City and Guilds qualification and compared to what is required for young people on similar courses in France and Germany. The linking of YT funding to outcomes of NVQ assessment without proper guarantees of independence for college-based assessors has resulted in damaging pressures on colleges to deny entry to poorly-qualified trainees and to pass students who are only barely competent. The article concludes that young people on YT should be entitled to receive general education in addition to occupational competence in order to bring their provision into line with mainstream 16-19 provision in Britain, to ensure future flexibility and adaptability and to match training standards for 16-19 year olds in other European countries.

Financial instability can have large adverse effects on an economy. One major cause of instability is asset price bubbles. This paper starts by considering how such bubbles can arise due to the expansion of money and credit. The ways in which subsequent financial instability occurs are then discussed. Banking crises can arise due to panics or as a result of the business cycle. Contagion and financial fragility can cause small disturbances to have large effects. Finally, policy issues are touched upon.

Cross-country divergence in credit availability to Small and Medium Enterprises (SMEs) has been a salient feature of the recent Euro Area economic crisis. This paper uses firm level and macroeconomic data to identify heterogeneity in SME credit conditions within the Euro Area since 2009. By taking account of differences in firm quality and in the risk-free interest rate, we use remaining residual differences in credit supply conditions to identify a ‘credit crunch’. We investigate whether macroeconomic conditions such as real economy growth and private sector leverage can explain these residual credit crunches, finding that banks respond to these factors when allocating credit to SMEs. The analysis allows identification of economies where credit conditions appear both unexpectedly restrictive and accommodative.

UK labour productivity is significantly lower than that of many other similarly advanced economies and has been so for decades, with negative implications for UK living standards. To make matters worse, during the last ten years labour productivity growth has stalled in most industrialised countries, and particularly in the UK. This has led to a renewed policy focus on productivity growth, as evidenced by successive government productivity plans and efforts to re-invigorate industrial strategy. This paper reviews the evidence on UK productivity performance, identifying what we know about the causes of its weakness, what we do not know and what this means for policy. We review the evidence through the lens of developments in economic measurement, drawing in particular on the work of National Institute colleagues past and present, and with a view to the key measurement challenges ahead that, unlocked, will help us understand better what is holding back UK productivity.

This article examines the numbers of skilled persons in engineering and allied occupations who qualify each year throughout the skill range—from an engineering doctorate to craftsmen and technicians—and compares Britain with other advanced industrial countries. The main quantitative difference between Britain and other countries lies in the numbers qualifying at the level of qualified craftsman; attention is also drawn to an important qualitative difference in practical content and length of university-degree courses in engineering.

The forecast presented in chapter 1 was produced with a new version of the Institute's UK econometric model. Model 11 contains a number of new features. The largest number of innovations occur on the ‘supply side’ of the model, including new equations for manufacturing employment, investment, exports, imports prices and average earnings. Two equally important developments involve the interaction between company sector liquidity and decisions about real variables, and between the flow of consumer credit and personal consumption. There are new equations for the exchange rate, unemployment and a host of more minor variables. In all about half of the model's equations have been re-estimated, and 30 new variables added to the model. These changes constitute the largest and most significant development of the Institute's UK model since the introduction of rational expectations with Model 8. This note summarises these changes, and discusses their implications for various standard policy simulations. A full model listing is also published by the Institute.

This paper argues that successive governments since the 1980s have struggled to establish the necessary foundations to enable the majority of young people to make effective and supported transitions from education to the labour market and, further, to create labour market conditions that protect and nurture young people's potential. The paper sets its analysis within a time-frame that began in 1981 and has come full circle in 2010 with the Labour Government's announcement of the Young Person's Guarantee. Whilst acknowledging that current economic conditions, and the predicted severe cuts in public spending, will make it difficult for an incoming government to make significant changes, the paper argues that new approaches are required to revitalise both the economy and individual life chances.

There is evidence that the risk of stranded assets in the oil and gas sector is underpriced in financial markets. Publicly traded Western oil and gas companies are starting to write down assets, opening up the possibility that more rationalisation of value is likely to come. To the extent that large oil companies diversify portfolios to include cleaner energy and carbon sequestration technologies, it could reduce the risk of a sudden cascading change in the stock valuation of these firms and related bond and credit markets. Instead, the vast majority of oil and gas assets that will be stranded are in the control of sovereign states whose national budgets are highly dependent on oil and gas revenues. Thus, the problem of stranded asset risk for the oil and gas sector may be most relevant in markets for sovereign credit as well as risks that go beyond financial losses.

Recent data on the UK balance of payments suggest that the deficit is deteriorating, and this may lead to downward pressure on the exchange rate. Of course some of the recent deterioration is due to temporary factors, such as the need for expensive gas imports and the inclusion of the estimated payment of insurance claims by Lloyd's of London due to Hurricane Katrina. However, there are some structural factors to look at. In this note we explore the effects of globalisation on UK trade and draw some conclusions for the UK economy. We first discuss European integration and its possible effects on trade, after which we look at changes in the world trading environment, both in terms of regulations and also in relation to technology. We then turn to estimating relationships for exports and imports. The level of exports and the degree of import penetration in the economy depend upon the level of world activity, the nature of the goods produced in the UK as compared to those demanded by consumers, the price competitiveness of UK products and the general trading environment facing the economy.

Using a large panel of UK manufacturing firms over the period 2000–9, we consider how firms responded during the most recent financial crisis, estimating models for export market participation decisions and firm growth and survival. The results indicate that financial variables are highly important in predicting export market entry, especially in the midst of the global financial crisis. With respect to firm growth and survival, we find that starters and continuous exporters are more likely to perform well in and out of the crisis than non-exporters.

We use microsimulation combined with a model of the COVID-19 impacts on individuals and households to obtain projections of households in destitution in the United Kingdom. The projections are estimated at two levels: aggregate quarterly for the UK, for all quarters of 2020; and annual for 2020 differentiated by region, sector and household demographics. At the aggregate level, destitution is projected to be about three times higher than the non-COVID counterfactual level in 2020Q2, as well as substantially higher than the non-COVID case for the remainder of the year. This increased destitution is initially largely due to the effect on the self-employed, and as the Furlough scheme is drawn down, also on the unemployed. Impacts upon different regions and sectors vary widely, and so do variations across different household types. The sectors particularly affected are construction and manufacturing, while London and its closely connected regions (South East and the Midlands) are most severely affected. Single adult households suffer the most, and the adverse effects increase with number of children in the household. That the effects upon youth remain high is a particularly worrying sign, and very high increases in destitution are also projected for 25–54 year olds and the elderly (75 years and older). Further, severe adverse effects are projected for sections of society and the economy where multiple impacts are coincident. Robust and sustained mitigation measures are therefore required.

This paper discusses recent research at the Centre for Growth and Business Cycle Research on the prediction of the expansion and recession phases of the business cycle for the UK, US, Germany, France and Italy. Financial variables are important predictors in these models, with the stock market playing a key role in the US but not the European countries, including the UK. In contrast, international linkages are important for the European countries. Our models suggest that the US and German economies have now emerged from the recession of 2001, and that all five countries will be in expansion during the third quarter of this year.

While much has been made of the value of employment relative to unemployment, much less is known about the value of work relative to retirement. Here we use two European panel datasets to show first that psychological well-being (measured on the EURO-D and GHQ scales) barely changes on average when individuals retire. However, there is a great deal of heterogeneity in the size of this change between job type and between individuals. Some gain on leaving work, while others experience substantial falls in well-being on retiring, suggesting that they may have preferred to carry on working. We suggest that the results of these analyses can help to inform policy aiming to encourage labour supply by older workers.

The contribution of differences in the Dutch and British education and training systems to the significant Dutch advantage in manufacturing productivity levels is examined in this article. The Dutch schooling system is characterised by high standards in mathematics, the provision of vocational education at ages 14-16 for a third of all pupils, and widespread vocational education at 16+. The proportion of the Dutch work force attaining vocational qualification approaches that of Germany and is well ahead of Britain. Comparisons of productivity, machinery and skills in matched samples of British and Dutch manufacturing plants were carried out in selected branches of two industries—engineering and food-processing. Higher average levels of work force skills and knowledge in the Dutch samples were found to contribute to higher productivity through better maintenance of machinery, greater consistency of product-quality and lower manning-levels (greater work force flexibility, less learning-time on new jobs). The Dutch productivity advantage was greatest in product areas where small- or medium-sized batches are demanded by the market.

This article uses a vector autoregression (VAR) approach to identify the causes of the 1990-92 recession in the UK. The VAR approach is shown to be particularly pertinent for quantifying the relative magnitude of the different demand shocks, and in decomposing them into monetary and expectational factors. The main finding is that the recent recession was precipitated primarily by shocks to consumption, and that the prior monetary tightening and the subsequent collapse in the housing market explain just part of this contraction. Non-monetary shocks also appear to have played an important role in bringing about the recession. The VAR model also offers interesting insights on the nature of the recovery that is currently under way.

In 1989 the UK began a process of transferring an almost wholly state-owned electricity supply industry (ESI) into a collection of privately-owned generation, transmission and distribution utilities. Using data from 1960–97, this paper aims to evaluate how the performance of the UK ESI has changed over time and to compare the UK performance with France, Germany and the United States in order to assess the impact of the liberalisation process. The study takes a whole-industry approach, combining the four aspects of electricity production — generation, transmission, distribution and supply. The computation of labour and total factor productivity and the impact on consumer prices are used to shed light on how successful the various industry structures have been in raising performance.

We assess the adequacy of saving in the United Kingdom from a macroeconomic perspective. We present conditions needed for wealth to grow in line with income and discuss the circumstances in which capital gains can represent a substitute for saving. We show that reference to balance sheets can be misleading because they fail to identify the cost of future consumption. A savings gap of between £16.5 bn and £66 bn is identified before taking account of the effects of demographic change. The outcome depends on whether one regards rising house prices as a consequence of fixed supplies of land or as the outcome of failing to invest enough in housing with the upper figure arising in the latter case. Policy measures to reduce the savings gap are discussed. These include appropriate use of fiscal policy and taxation of credit.

Using daily data on vaccinations, disease spread and measures of social interaction from Google Mobility reports aggregated at the country level for 112 countries, we present estimates of behavioural responses to the global rollout of COVID-19 vaccines. We first estimate correlates of the timing and intensity of the vaccination rollout, finding that countries which vaccinated more of their population earlier strongly tended to be richer, whereas measures of the state of pandemic or its death toll up to the time of the initial vaccine rollout had little predictive ability after controlling for income. Estimates of models of social distancing and disease spread suggest that countries which vaccinated more quickly also experienced decreases in some measures of social distancing, yet also lower incidence of disease, and in these countries, policy-makers relaxed social distancing measures relative to countries which rolled out vaccinations more slowly.