Economic and Business Forecasting

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UK……………………………………………………United Kingdom

Executive Summary

It is becoming increasingly difficult to ignore the benefits of forecasting Better forecasts are becoming more and more important for the successful strategic planning of governments due to increased turbulence in world conditions. Based on their position, sector forecasters need in-depth knowledge of the countries key performance indicators. This report intends to show the key performance indicators as driven by the various sector players. This document reports on the findings of the UK public sector debt run, UK Households’ expenditure on clothing and UK’s Employment of over 16s.Forecasting ways have various properties, thereby the forecaster is faced with a trade of between requirements versus excellence. The major findings are that…………… No forecasting method is found to be superior from a theoretical standpoint, and the optimal method for forecasting, therefore, depends on the situation in which it is applied. Public sector challenges and differences make it impossible to forecast with a standardized set of indicators, and the various industry specification indicators are needed to forecast each industry. Indicators must be chosen on the foundation of subjective information of experimental relations, or industry sequence theories. Forecasting with the same method in all the sectors seems realistic. Finally, it is concluded that………………… the main recommendations being ………………………


In the new global economy, forecasting has become a central issue for economists one measure of governments’ performance in managing the public finances is the level of public sector debt. (Huh, 1998) The description and responsibilities for debt degrees have varied all through the period. This note will set to provide the three-year forecast as regards the UK public sector debt run, UK household expenditure on clothing and UK employment of over 16 this will be guided by the historical analysis of the previous years data. It will set out the history of the data and explain the current arrangements. The report will show the forecast for the next period by analyzing the captured data. The majority of debt financing is through central government issues of government securities (gilts)and treasury bills (mostaghimi, 2004)The UK Government has the Sustainable Investment Rule as one of its two main guidance principles. this report will also show and delve on both the regional and country-based variations in the amount households spent on clothing. And also attempt to draw the UK employment of over 16 it will use simple ARIMA/ARIMAX models to examine the leading indices’ predictive performance for real . The report will cover the following areas. The UK’s Public Sector Net Debt, using a multiple regression model. The UK Households’ expenditure on clothing, using a Time SeriesDecomposition model and The UK’s Employment of over 16s  using an ARIMA/ARMAX model.

Economic Indicators

Telling by its name, this is data on an economic activity that can be able to indicate something about another economic activity. This concept was put forth by Burns and Mitchell in the 1930s, Burns and Mitchell made a list of indicators that they meant could predict the economy however The list has been revised several times since its creation, but with very little changes in it The idea behind the method then, is to find the activity that serves as a cause in a relationship and use it to predict the effect (ellis, 2005)

The UK’s Public Sector Net Debt

Mitchell, (2014)in his book the economic outlook describes public sector debt run  as the United Kingdom National Debt as the total quantity of money borrowed by the Government of the United Kingdom at any one time through the issue of securities by the British Treasury and other government agencies (Mitchell), (2014)

Recent History of UK National Debt

As described in the historical national debt (2013), after a period of financial restraint, from mid-1990s, public sector debt at a % of GDP fell to 29% of GDP by 2002. From 2002 – 2007, national debt increased to 37 % of GDP. This increase in debt levels occurred despite the long period of economic expansion; it was primarily due to the government’s decision to increase spending on health and education there has also been a marked rise in social security spending. From the years 2008 the public sector national debt has arisen by a sharp margin because:(historical national debt), (2013).

  • The 2008-13 recession (lower tax receipts, higher spending on unemployment benefits) the recession particularly hit stamp duty (falling house prices) income tax and lower corporation tax. (p.klein, 2001)
  • These cyclical factors have also exposed an underlying structural deficit. (deficit caused by spending greater than tax, ignoring cyclical factors)
  • Financial bailout financial institutions and especially banks

The UK National Debt since 1900can be seen below.

Figure 1:  National Debt since 1922 Source: HM Treasury and UK Public Spending.

These graphs depict that government debt as a % of GDP has been higher in the past. And especially after the two world wars. (Moore, 2004) The suggestion is that UK debt is manageable compared to the early 1950s. However, in the current climate, the UK wouldn’t be able to borrow the same as in the past. For example, private sector saving is much lower, and bigger financial markets wouldn’t give UK big loan like in the 1950s.

Multiple regression model

Techpedia explains multiple regressions as a statistical tool used to derive the value of a criterion from several other independent, or predictor, variables. It is the simultaneous combination of multiple factors to assess how and to what extent they affect a certain outcome.

the model for multiple linear regression, given n observations, is
yi = 0 + 1xi1 + 2xi2 + … pxip + i for i = 1,2, … n.

Data analysis


The UK Households’ expenditure on clothing

This depicts the expenditure patterns of households in the UK The Family (Anderson, 1994)Expenditure Survey has been aa long-running uninterrupted survey, carried out by the Office for National Statistics (ONS), through applying a random sample of households drawn from every country in the United Kingdom the Interviews take place in about 7000 households every year, and involve all ‘spenders’ over the age of 16. The overall response rate is 70 per cent. each spender is asked to complete an expenditure diary over a two week period. Respondents are asked to note in the diary every single item, which they have bought, and to record if a credit card was used to make the purchase. This analysis helps tacticians decide how to best forecast and will also be applicable in this report for this is the key for analyzing the data

Time Series Methods

The fact that the majority of forecasting relies or is based on time series, the time series methods apply the concept that events that happened in the past in past time series will certainly  reoccur in the future. The methods described in this section were not created as forecasting methods, but rather they have been used the ad as monitoring tools   (klein, 1994)However, all of them are able to give some relevant forecasting insights. Additionally, the methods can be applied on the time series of an indicator in to predict the future behavior of the indicator, which may open the chance for a long-run forecast of the economic activity that the indicator forecasts.

The time series decomposition model can be described as below

  • The Trend that reflects the long term progression of the series
  • the Cyclical Component that describes repeated but non-periodic fluctuations
  • the Seasonal Component reflecting  (seasonal variation)
  • The Irregular Component that describes random, irregular influences

Data analysis

The UK’s Employment of over 16s (MGRZ)

This represents the number of people in employment  these are people in employment consists of age 16 and over who do paid work (as an employee or self-employed), those who have a job that they are away temporarily, those on government-supported training and employment programs, and those doing unpaid family work. Employment levels and rates are published each month in the Labor Market Statistical Bulletin. Estimates are presented by age, by sex and for full-time, part-time, and temporary workers. Employment levels measure the total number of people estimated to be in employment while employment rates allow changes in the labor market to be interpreted in a wider context by allowing for changes in the population. The measure of employment for the UK is the employment rate for those aged between 16 and 64.

Estimates of employment are also available for Government Office Regions (GORs) and at local area level. Regional estimates of total employment are measured by the LFS while more disaggregated regional employment estimates and local area estimates are measured by the Annual Population Survey (APS). Estimates of employment levels and rates for the UK are available from 1971. The theory of employment lies on the supply side of the labor market structure, as it measures those people who supply their labor.


According to (Baum, 2013)  he Describes the arima model as a theoretic linear univariate time series model which expresses that series in terms of three sets of parameters:




Aderson, m. (1994). Anderson, M., Bechhofer, F. and Gershuny, J. (1994) The Social and Political Economy of the Household, Oxford: Oxford University Press.

Baum, C. (2013). Christopher F Baum applied econometrics. boston college spring 2013.

ellis. (2005).

Huh. (1998). Huh, C. (1998). Forecasting industrial production using models with business.

klein, n. a. (1994).Understanding forecast methods

Mitchell, b. (1014). Prof. Bill Mitchell”. 2013-06-07. Retrieved 2014-03-20.

Moore. (2004). Moore, G. (2004). New developments in leading indicators. In Lahiri, K.

mostaghimi. (2004). Mostaghimi, M. (2004). The performance of the new us composite leading.

p.klein. (2001). Klein, P. (2001). The leading indicators in historical perspective. In Board.


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