4
6
120
Monthly Average of Official Bank of England Rate
and Consumer Confidence Index
8
Quarterly UK Real GDP Growth and Unemployment Rate
Source: Office of National Statistics
80
100
Consumer Confidence Index
4
7
Source: Bank of England, Nationwide
Ju
l-0
9
Ju
l-0
8
D
ec
-0
8
Ju
l-0
7
Ja
n08
Ju
l-0
6
Ja
n07
Ju
l-0
5
Ja
n06
Ja
n-
05
0
40
60
2
Consumer Confidence
5
Ju
l-0
8
D
ec
-0
8
08
Ja
n-
Ju
l-0
7
07
Ja
n-
Ju
l-0
6
06
Ja
n-
Ju
l-0
5
Ja
n-
05
4
-6
-4
-2
Unemployment rate
6
Base Rate (%)
0
GDP Growth
Unemployment rate (%)
2
Base Rate
Nominal Monthly Interest rate of UK Resident Banks
15
Sterling Overdraft
Credit Card lending
10
Personal Loan 5K
Personal Loan 10K
Variable Rate Mortgage
ep
-0
8
D
ec
-0
8
M
ar
-0
9
Ju
n09
S
ep
-0
7
D
ec
-0
7
M
ar
-0
8
Ju
n08
S
Ju
n07
M
ar
-0
7
5
Percentage
20
Household Borrowing Interest Rate
4
Fixed rate bond
Cash ISA
2
Time deposits
Instant access deposits
Source: Bank of England
ep
-0
8
D
ec
-0
8
M
ar
-0
9
Ju
n09
S
ep
-0
7
D
ec
-0
7
M
ar
-0
8
Ju
n08
S
Ju
n07
M
ar
-0
7
0
Percentage
6
Household Deposit Interest Rate
Mean SD
Consumer Confidence Index
Spending Questions
Retail sales Volume:
Month on same month a year ago %change
All Retailing
Predominantly food stores
Predominantly non- food stores
VAT receipts:
Month on same month a year ago %change
Cash VAT receipts
Accrued VAT receipts
Implied Sales Volume:
Month on same month a year ago %change
Implied Sales Volume using Cash VAT receipts
Implied Sales Volume using Accrued VAT receipts
Household aggregate final consumption:
Quarter on same quarter a year ago %change
Total domestic
Total durable
Total non-durable
Food and non-alcoholic drinks
Clothing and footwear
Source
Nationwide by TNS
Period covered
May-04 Aug-09
Note
ONS
2.8
2.1
3.6
2.3
1.4
3.4
Jan-89
Jan-89
Jan-89
Jul-09
Jul-09
Jul-09
Jan-98
Jan-99
Jul-09
Jul-09
HMRC
3.5
4.2
9.9
8.8
HMRC (VAT receipts)
ONS (RPIY)
1.9
2.5
8.2
6.9
Calculated using VAT receipts,
VAT rate and RPIY price index
Jan-98
Jan-99
Jul-09
Jul-09
Q1-65
Q1-65
Q1-65
Q1-65
Q1-65
Q1-09
Q1-09
Q1-09
Q1-09
Q1-09
ONS
2.6
5.4
1.2
1.0
4.2
2.4
9.0
1.9
2.4
3.9
Weighted, Fixed -Effects Estimation of the Effect of VAT Cut on Prices
Dependent variable: Monthly RPI-weighted inflation rate of 2-digit items; Jan 2005- Jun 2009
(1)
(2)
VAT
-0.014
-0.015
(-2.29)
(-1.74)
VATtrend
0.000
(0.26)
0.001
(0.59)
(3)
-0.016
(-1.79)
0.001
(0.56)
durable*VAT
0.009
(0.59)
durable*VATtrend
0.000
(0.02)
Time trend
0.001
(6.14)
0.001
(5.92)
0.001
(5.92)
Month dummies
Observations
No. of time periods
No. of groups
Test of null hypothesis of no pass through (p)
Test of null hypothesis of 100% pass through (p)
Pass through
N
3456
174
64
0.022
0.276
66%
Y
3456
174
64
0.081
0.454
70%
Y
3456
174
64
0.073
0.596
75%
Note: Standard errors are bootstrapped; 999 replications.
Pass through rate calculated by dividing the coefficient on VAT by -0.0213
Test of full pass through is a test of whether the coefficient on the VAT dummy is equal to -.0213
3
2
1
09
Ju
n-
D
ec
-0
8
M
ar
-0
9
08
Se
p-
08
Ju
n-
D
ec
-0
7
M
ar
-0
8
07
Se
p-
07
Ju
n-
M
ar
-0
7
0
Percentage
4
Expected Inflation
Month
GFK NOP Survey of Inflation Attitude
5 year inflation zero coupon, yield from gov. securities
Source: Survey of inflation attitudes conducted by GfK NOP on behalf of the Bank of England
40
60
80
100
Household Appliances Relative Value
and Present Situation Index
Household Appliances
Source: Nationwide Consumer Confidence Index conducted by TNS
Present Situation Index
Ju
n09
ec
-0
8
D
Ju
n08
ec
-0
7
D
Ju
n07
ec
-0
6
D
Ju
n06
ec
-0
5
D
Ju
n05
ec
-0
4
D
Ju
n04
20
1 Dec 08
VAT Cut
Ju
n07
Se
p07
D
ec
-0
7
M
ar
-0
8
Ju
n08
Se
p08
D
ec
-0
8
M
ar
-0
9
Ju
n09
7
ar
-0
M
Real interest rate calculated using expected inflation figures from NOP survey
Relative value: POSITIVE figure divided by the sum of the POSITIVE and
NEGATIVE to yield a proportion
Source: Nationwide, Bank of England
15
10
Household Appliances
Interest rate:
0
5
Credit Card
-5
50
60
70
80
90
Interest rate (Percentage)
20
100
Household Appliances Relative Value
and Real Interest Rates
Time deposits
100 120
Household Appliances Relative Value,
Present Situation and Expectation Indices
Household Appliances
Expectation Index
Source: Nationwide Consumer Confidence Index conducted by TNS
Present Situation Index
n09
Ju
-0
8
ec
D
n08
Ju
-0
7
ec
D
n07
Ju
-0
6
ec
D
n06
Ju
-0
5
ec
D
n05
Ju
-0
4
ec
D
Ju
n04
20
40
60
80
1 Dec 08
VAT Cut
Retail Sales Volume %Change on Year Earlier: Moving average
8
All Retailing, Predominantly Food Stores and Predominantly Non-food Stores
4
2
0
-2
ec
-0
M 4
ar
-0
Ju 5
n0
Se 5
p0
D 5
ec
-0
M 5
ar
-0
Ju 6
n0
Se 6
p0
D 6
ec
-0
M 6
ar
-0
Ju 7
n0
Se 7
p0
D 7
ec
-0
M 7
ar
-0
Ju 8
n0
Se 8
p0
D 8
ec
-0
M 8
ar
-0
9
D
Percentage
6
1 Dec 08
VAT Cut
All Retailing
Predominantly Non-food
Source: Office of National Statistics
Predominantly Food
Dependent variable: Growth rate in volume of non-food sales less growth Rate
in the volume of food sales
(1)
VAT
3.837
(3.28)
VATtrend
-1.189
(-5.68)
Constant
2.749
(5.95)
Number of Observations
Note: Standard errors are Newey-West
54
• Difficult to rationalize the time pattern with a model.
θ
u (ct )
ct
1 1/
1 1/
unconstrained/forward looking:
1
t1 c1
ln 1
t1
ln c1
ln c
1 t2
c2
1 r
1.2
ln 1
ln 1
t1
r
W0
y1
1
1
r
y2
ln
ln 1
t1
ln(1
)
liquidity constrained:
1
t1 c1
W0
y1
ln c1
ln(1 t1 )
1
ln(1
t2 )
1 1/
u (ct )
ln ct
1
ct c
1 1/
ct c
ct
ln(1 rt 1 ) ut
1