Policy Brief
Economic trends
Introduction
This Brief provides a summary of the key data on trends in the Jersey economy, in particular the major variables – economic growth, retail prices and earnings. It also summarises the analysis from the Government’s Fiscal Policy Panel (FPP), which includes forecasts for the next three years.
Summary
· Financial and insurance services account for 36.7% of Jersey’s economy.
· Jersey’s economy grew by 5.9% in 2022. In March 2023 the FPP forecast growth of 1.7% in 2023 and 2.6% in 2024.
· Retail Prices increased by 5.7% in the year to March 2024. The FPP’s March 2023 forecast was for an increase of 5.3% in 2024 as a whole and 0.8% in 2025.
· Average earnings increased by 7.7% in the year to June 2023. The FPP’s March 2023 forecast was for an increase of 6.7% in 2023 as a whole, and 4.2% in 2024.
· The FPP’s March 2023 forecast for house prices was a fall of 2% in 2023 and no change in 2024.
Structure of the economy
The annual report Measuring Jersey’s economy – GDP and GVA – 2022 was published on 4 October 2023. Table 1 shows a breakdown of Gross Value Added (GVA) by sector in 2022.
Table 1 Gross value added by sector, 2022
For the first time the report uses the 2007 Standard Industrial Classification, which facilitates harmonisation of statistics and international comparisons. The report includes the following comments on the new presentation -
· Financial and insurance activities does not include legal and accounting services which have been traditionally included within the Jersey “Financial Services” GVA figures. These sub-sectors are now included under the “professional, scientific and technical activities” sector.
· Real estate activities include rental income of private households which was previously presented separately. This includes both rental income earned by private households as well as imputed rental costs of owner-occupiers – the amount owner-occupiers would pay to themselves to rent their properties. The imputed rental costs account for 64% of the “real estate activities” figure.
The report on the size of the economy in 2022 included the following -
· GVA increased by 5.9% in real terms compared to 2021.
· TotalGVA was £5,761 million.
· The annual increase in overall GVA was driven by the financial and insurance activities sector as a result of increased net interest income in the banking sub-sector.
· The largest percentage increase in GVA was in the accommodation and food services sector, which increased in real terms by 24.7%, continuing the sector’s recovery from the Covid 19 pandemic.
· Several sectors recorded real-term GVA decreases, particularly agriculture, forestry and fishing (down 11%) and utilities (down 9%).
Economic growth
The report gives links to detailed statistical tables, which enable the longer run performance of the economy to be analysed. In 2000, following years of rapid growth, GVA in 2022 prices was £5,799 million. It then fluctuated reaching a new peak of £5,801 million in 2007. By 2013 the economy had shrunk by 15% and, given the increase in population, GVA per head had fallen by over 20%. There was then a steady recovery until 2020 when the pandemic caused a near 10% reduction in the size of the economy. This was reversed in 2021 and strong growth of 6.7% was recorded in 2022. It was only in 2022 that GVA in real terms exceeded the 2000 figure. However, given the increase in population real GVA per head was 9% lower than in 2000.
Table 2 summarises these trends. The figures are taken from tables that can be accessed from the 2022 report, except that GVA per head in 2000 is based on an estimate of the 2000 population and GVA per head in 2022 assumes an unchanged population between 2021 and 2022.
Table 2 Growth of the Jersey economy 2000-2022
Retail prices and earnings
Statistics Jersey publishes quarterly retail price reports.
On 26 April 2024 Statistics Jersey published Jersey Retail Prices Index March 2024. The key points are –
- In the 12 months to March 2024 the All-Items Retail Prices Index (RPI) for Jersey increased by 5.7%, a reduction from the figure of 7.5% in the 12 months to December 2024 and 12.7% in the 12 months to March 2023.
- Housing made the largest contribution to the inflation rate, contributing 2.6 percentage points to the inflation rate, largely as a result of increases in the cost of mortgage interest payments.
- The underlying rate of inflation (RPI (Y)) increased by 3.7% in the twelve months to March 2024, compared with 4.5% in the 12 months to December 2023. This measure excludes mortgage interest payments and indirect taxes and is the best measure of the trend.
- Three separate indices cover specific categories of people. So, compared with the all-items increase of 5.7% in the 12 months to March 2024 -
o RPI (X), which excludes mortgage interest payments increased by 3.9%.
o RPI Pensioners increased by 4.1%.
o RPI Low Income increased by 3.8%.
- The rate of inflation in Jersey over the twelve months to March 2024, as measured by the all-items RPI, was 1.9 percentage points higher than the equivalent UK rate – 5.7% as against 3.8%.
The following graph is reproduced from the report.
Figures on average earnings are published for June each year. Index of average earnings June 2023 was published on 25 August 2023.
The summary is set out below –
In June 2023:
· average earnings per full-time equivalent employee (FTE) were 7.7% higher than in June 2022
· after adjusting for inflation (the headline rate of inflation in Jersey in June 2023 was 10.9%), average earnings fell in real terms by 2.8%
· over the last 10 years, average earnings have decreased in real terms by 2.7%
· over the twelve months to June 2023:
o average earnings in the private sector increased by 7.8% in nominal terms (before adjusting for inflation) and in real terms fell by 2.8%
o average earnings in the public sector increased by 7.4% in nominal terms and in real terms fell by 3.2%
· within the private sector:
o the lowest increase in average earnings was recorded by the other business activities sector (this sector includes a wide range of predominantly private service-based businesses and includes care homes, cleaning companies, private education and leisure services), an increase of 5.2% on an annual basis
o the agriculture sector saw the highest annual increase, up 19.8% on an annual basis; this was driven by an increase in hours worked in June 2023 compared to June 2022, with the increase in the minimum wage (13.9%) also contributing to the large increase in the sector
· median average earnings of full-time equivalent employees was £800 per week
· mean average earnings of full-time equivalent employees was £920 per week
· around 14% of private sector employees were earning less than £12.19 per hour (the Jersey “Living Wage”)
o the agriculture and fishing (43%), hotels, restaurants & bars (40%) and wholesale and retail trades (36%) were the sectors with the highest proportion of employees earning less than the living wage.
Fiscal Policy Panel analysis and forecast
Statistics Jersey publishes statistics. Analysis of the statistics and forecasts for the future are made by Jersey’s Fiscal Policy Panel, a group of economists who provide the Government with independent advice on trends in the economy and the economic outlook. The Panel published its 2023 Annual Report on 13 November 2023. Its analysis of economic developments made the following points –
· The economy grew by 6.7% in 2022, faster than in other advanced economies. The driver of growth was profits in the financial services sector, largely as a result of the increase in interest rates.
· The non-financial sector had subdued growth of just 0.6%, employment grew by 3% and productivity fell by 1.7%.
· Jersey continues to operate at full employment.
· Low unemployment and high economic growth contributed to strong nominal earnings growth, but in real terms average earning fell by 3% in 2022 after a decade of zero real earnings growth.
· Inflation peaked at 12.7% in December 2022.
· Increases in interest rates have led to a slowing in the housing market. In 2022 the house prices earnings ratio worsened slightly. The average house price in Jersey is nearly 15 times average household income compared with 8.4 times in England and 13.9 times in London.
· House prices have reduced only slightly.
The Panel’s report includes a table of “central economic assumptions”, broadly speaking an economic forecast. These are published each March, updated to take account of new data each November. Table 3 shows the key variables, taken from the report.
Table 3 Key economic variables, rate of change %
The table shows the average earnings are forecast to fall in real terms by about 8% in the 2022-2024 period, before increasing modestly in 2025 and 2026.
The executive summary of the report makes the following points -
· Low productivity growth has become a pervasive feature of Jersey’s economy. Economic growth has depended on a growing workforce. Inflation has peaked and is forecast to fall steadily throughout 2024. However, a lack of spare capacity means that elevated inflation is an ongoing risk for Jersey.
· As well as low productivity growth, an ageing population will put increasing pressure on Jersey’s fiscal position.
· Despite a slowing of housing market activity in 2023, the high cost of housing continues to be a potential drag on economic growth and productivity and is also likely to be contributing to difficulties in recruiting and retaining workers.
Publications schedule for 2024
The Business and Economy Statistics page of the government website contains details of 11 relevant statistical series. Key dates in 2024 are -
May 2024: Fiscal Policy Panel economic assumptions
24 July 2024: June 2024 retail prices index
23 August 2024: June 2024 average earnings
4 October 2024: 2023 GVA and GDP
23 October 2024: September2024 retail prices index
November 2024: Fiscal Policy Panel annual report