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Command GDP: the purchasing power of UK output
Abstract
Develops an estimate for the UK and discusses recent trends in what could be a relevant statisticGross domestic product (GDP) measuresthe volume of goods and servicesproduced by a nation. By adjusting thismeasure to reflect movements in theterms of trade, command GDP describesthe purchasing power of a nation’soutput. For an open economy such as theUK, and given recent developments in theglobal economy such as the introductionof low-cost emerging market producers,large increases in commodity prices andexchange rate volatility, it could be arelevant statistic. This article develops anestimate of command GDP for the UK anddiscusses recent trends. Economic & Labour Market Review (2008) 2, 26–29; doi:10.1057/elmr.2008.136
As a measure of economic activity, gross domestic product (GDP) is a useful indicator of output and suitable for using in estimates of productivity. However, as a measure of welfare, it has several limitations. This article follows Sefton and Weale (1996, 2005) in producing an estimate of real income ‐ a corrected or adjusted version of GDP ‐ that is linked to current and future consumption possibilities. This measure of real income differs from real (money) GDP by taking account of capital consumption, net income and transfers from overseas, and uses a consumption deflator rather than a general GDP deflator so that output is valued in terms of consumption units.
Methods explained is a quarterly series of short articles explaining statistical issues and methodologies relevant to ONS and other data. As well
as defining the topic areas, the notes explain why and how these methodologies are used. Where relevant, the reader is also pointed to further
sources of information.
The share of UK imports from developing countries has increased sharply in recent years. Using measures of bilateral trade prices, this article suggests that increased sourcing from low-cost economies has put significant downward pressure on the relative price of UK goods imports. However, this effect may have dissipated over time as the prices of UK imports from low-cost economies have risen more rapidly than in the past and developing economies' increasing demand for raw materials has contributed to higher oil and commodities prices.
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The UK terms of trade rose by 15% from 1995 Q3 to 2003 Q1. This article looks at alternative explanations of why this happened, and what they mean for the likelihood that the terms of trade increase will endure.