Using Firm-Level Surveys to Understand Industrial and Regional Capacity, Investment, Productivity and Output Growth

This project uses the firm-level responses to the suite of surveys conducted monthly by the Confederation of British Industry (CBI) over the last twenty years to better understand firm decisions and dynamics, and their impact on macroeconomic variables including productivity, investment, output and inflation.

The CBI data offer useful qualitative and quantitative data on capacity utilisation, capital investment (and barriers to it), output and prices, which few other surveys capture. It is difficult to use in conjunction with ONS business survey data due to different collection methods, so we link it to the Inter-Departmental Business Register (IDBR) to enable further firm-level analysis.

Productivity is the main driver of long-term economic growth and higher living standards, but growth in the UK has been slow ever since the 2008 economic downturn, a phenomenon sometimes known as the UK “productivity puzzle”. Ambiguity around both the severity and duration of the productivity slowdown remains, including around the propagation mechanisms by which demand and supply shocks impact on capital, productivity and trend output growth.

To explore these topics, we use data from a suite of business surveys conducted by the Confederation of British Industry (CBI). The CBI surveys have a good coverage of UK firms and have a long sample. Survey data provides a direct measure of plans, expectations and real-time information on the context in which businesses make decisions. The CBI data are especially informative on issues relating to investment, output decisions, inventories, capacity and associated constraints. Using the firm name and address, we link these data with company accounts information and ONS survey data.

With these linked data we have conducted analysis of micro-level planning decisions and outcomes, to better understand investment, capacity, output and prices.

The project focuses on the insights that can be gained from analysis of survey data at the firm-level. We primarily use the business surveys run by the Confederation of British industry (CBI), which have a long time series of data asking a range of questions relevant for analysis of productivity, capacity, output and inflation.

Since the CBI surveys are not run by the Office for National Statistics (ONS), and not sampled from the Inter-Departmental Business Register (IDBR), it does not contain the firm-level identifiers that would be necessary to link it to other official survey datasets. As such, we linked the CBI data to the IDBR, matching on names and addresses. This enabled us to link the data with other ONS surveys. We also matched the CBI data with the FAME dataset of company financial statements from Bureau van Dijk.

With these linked data in hand (as well as a range of other firm-level data, mainly from other ONS surveys), we use a range of economic and econometric methods to explore the questions of interest.

Our initial work was to understand the CBI survey data. We produced a range of descriptive statistics of the CBI data, looking at trends in coverage, reported output and expectations, and trends in more qualitative questions such as barriers to investment.

We also conducted a data linkage exercise, linking the CBI data to the IDBR and FAME. Match rates between CBI and IDBR were good – about 90% in aggregate, and above 80% for most firm types and breakdowns. Match rates between CBI and FAME were lower, typically around 50%, given the skew towards large firms in FAME.

Using the CBI data, we found that accounting for capacity utilisation gives a much better understanding of investment dynamics. When firms can adjust the utilisation of their capital, it reduces their need to invest in new capital. This helps to explain sluggish capital investment in the UK after the 2008 economic downturn.

Work is ongoing, and future findings will be on pricing decisions and output growth.

Improved measurement of investment, inventories, capacity and output will contribute to better understanding of how business cycle fluctuations, temporary and permanent effects of shocks impact on productivity. These are important topics for understanding the macroeconomy, so will be useful to the Bank of England and forecasters.

Our research is of interest to the CBI and ONS and may inform future developments to business surveys and faster economic indicators.

Our paper describing the CBI data will be a useful reference for researchers in the future looking to use the same data. Our paper on data linkage offers a useful roadmap and guide for researchers considering data linkage of a non-ONS source with ONS survey data.

Lee, K. Mahony, M.J. and Mizen, P. “Investment and Capacity Utilisation in a Putty-Clay Framework” ESCoE Conference on Economic Measurement 2022, Contributed Session L, University of Strathclyde, 25-27 May 2022

Mahony, M.J. ‘The Importance of Including Capacity Utilisation’ ESCoE Blog, 3rd February 2022

Lee, K., Mahony, M.J. and Mizen, P. (2022) “Investment and Capacity Utilisation in a Putty-Clay Framework” ESCoE Discussion Paper Series, ESCoE DP 2022-03

Mahony, M.J. and Martin, J. (2022) “Matching UK Business Microdata – A Study Using ONS and CBI Business Surveys” ESCoE Technical Report Series, ESCoE TR-14

Martin, J. “Thinking about data linkage?” ESCoE blog, 18 January 2022

Lee, K., Mahony, M.J. and Mizen, P. “Output Expectations, Uncertainty and the UK Business Cycle; Evidence from the CBI’s Suite of Business Surveys”, Annual Conference of Centre for International Research on Economic Tendency Surveys  (CIRET): Session on ‘Business Tendency Surveys’,  Poznan, Poland, 15-17 September 2021

Mahony, M.J. (2021) “Using Firm-Level Surveys to Understand Industrial and Regional Capacity, Investment, Productivity and Output Growth” ESCoE Conference on Economic Measurement 2021, Poster Exhibition, 11-13 May 2021

Lee, K., Mahony, M.J. and Mizen, P. “Use of CBI survey data”, Confederation of British Industry, 17^th Dec 2020

Lee, K., Mizen, P. and Mahony, M.J. (2020) “The CBI Suite of Business Surveys” ESCoE Technical Report Series, ESCoE TR-08

Lee, K., Mizen, P. and Mahony, M.J. “What Do Firms Tell Us About the Macroeconomy?; Answers from the Confederation of British Industry (CBI)’s Suite of Surveys” ESCoE Blog, 25 August 2020

Lee, K., Mahony, M.J. and Mizen, P. “Output Expectations, Uncertainty and the UK Business Cycle; Evidence from the CBI’s Suite of Business Surveys” ESCoE Conference on Economic Measurement, Contributed Session G: GDP Measurement and Uncertainty, 16-18 September 2020