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BBC TwoNewsnight
Last Updated: Thursday, 2 February 2006, 18:11 GMT
GorDaq - the economics element
As Gordon Brown has been Chancellor of the Exchequer since 1997, the state of the UK economy is his CV.

Generic shot of denominations of the British Pound
Talking money - how much has the Chancellor been borrowing?
To measure the changes in the state of the economy and their impact on Gordon Brown's status for the GorDaq, Newsnight have asked the economics consultancy cebr to look at a range of economic indicators.

The index is compiled by Douglas McWilliams and Jaspreet Sehmi of cebr.

How much the Chancellor is borrowing

The indicator that is most clearly under the Chancellor's own control is his own level of public borrowing. This tells us how much debt he is running up on the nation's behalf.

Gordon Brown
Is the economy safe in his hands?
We incorporate this by taking the estimates of public borrowing for the current year and the forecasts for next year from the Treasury's complication of independent forecasts for the British economy.

This gives the best view of public borrowing trends from each of the 42 sets of top independent economics forecasters covered (including ourselves at cebr) and averages them.

We use the forecasts in addition to estimates for the current year to take into account the latest information about ongoing trends which are likely to spill over into next year.

The view on this is updated monthly.

Economic growth

An indicator that measures how well the economy is doing is GDP growth.

Again, we use the estimates for the current year and forecasts for the next and take them from the 42 independent forecasters.

The view on this is also updated monthly.

Views of the forex and stock markets

Clearly no assessment of the Chancellor's performance in running the economy can ignore the view of the financial markets.

The London Stock Exchange
The London Stock Exchange provides one of the indicators of the view of the financial markets
We look at two indicators here - the trade weighted exchange rate and the FTSE stock market index from the London Stock Exchange.

Both are calculated in real time and can therefore give an up to the minute measure of how the markets see the Chancellor and the UK economy.

The FTSE largely measures the view of UK investors, the exchange rate the views of international investors. So we get a broad coverage of different perspectives.

The data for the FTSE comes from various sources (we normally use the FT website ft.com), that for the trade weighted exchange rate is officially issued by the Bank of England.

Business confidence

Finally we take the views of UK businesses. Each month there are dozens of business surveys reflecting the state of business confidence.

The accountants BDO Stoy Hayward compile a "poll of polls" for the best established of these surveys each month and their business confidence index, which takes the information from these and combines it together, is also added to the mix.

Making the data consistent and aggregated

To turn this data into an index, the different series have to be made consistent with each other and then aggregated.

The series are made consistent with each other by scaling them on the basis that the average of the two past recession levels are scored at 50 and the average of the two past cyclical peaks are scored at 150.

The series are then transposed on to the new scale. Once they are comparable they are aggregated together and expressed as a new index based at 100.

Economic performance has declined over the past year

What the economics of GorDaq is currently showing is that the UK economy has slowed down to slightly below trend growth.

During January the index hardly moved, reflecting the fact that the view of the state of the economy did not change much over the period.

What is interesting, however, is that over the same period, the volume of bad news in the press about the economy has been growing.

What seems to have happened is that the bad news about the economy that emerged during 2005 is gradually working its way into perceptions and affecting other elements of the GorDaq.

So the economics element of the GorDaq seems to be a leading indicator of Gordon Brown's fortunes.



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