Jersey Economic Digest 2008

States of Jersey Statistics Unit

Jersey Economic Digest

2008

Contents  Page

Summary 3 Section 1: Economy 5 Overview  5

Development of the Jersey economy 6 Economic sectors 8

Gross Value Added per employee 10 Finance sector profits 12

Section 2: Employment 14 Overview 14 Seasonality in employment 14 Employment by sector 16 Unemployment 19

Section 3: Price s and earnings 20 Retail Price s Index (RPI) 20 Average earnings 22 Earnings and prices 24 House prices 26

RPI, earnings and house prices 31

Annex

Table A1a: Gross Value Added by sector in current prices 32 Table A1b: Gross Value Added by sector in real terms 32 Table A2: GVA per full-time equivalent employee in real terms 33 Table A3a: Employment by sector – full-time equivalents 34 Table A3b: Private sector employment by sector – headcount 34

Table A4: RPI group level indices and RPI(X) 35 Table A5: Average earnings by sector 36 Table A6: Statistics Unit 2008 publications   37 Table A7: Statistics Unit 2009 publications   38

Summary

The latest edition of the Jersey Economic Digest brings together a wide range of statistics relating to the Island's economy which have been published by the States of Jersey Statistics Unit in 2008.

Section 1 looks at measures of the size of the economy: Gross National Income (GNI), Gross Value Added (GVA) and Gross Value Added per employee. These measures are presented in terms of the economy as a whole and also at a sectoral level. Since the Finance sector accounts for more than half of all economic activity in Jersey, Finance sector profits are also considered separately in further detail.

Section 2 provides information on Jersey employment, including employment by sector, seasonality patterns and unemployment.

Section 3 covers prices and earnings. Trends in the Retail Price s Index, House Price Index and the Index of Average Earnings are reported, as well as cross-analysis of all three indices.

Whilst the focus of the Digest is the Jersey economy, the economic situation in Jersey is compared with that of other countries and jurisdictions (such as the UK) where appropriate. This edition presents annual data up to 2007 and quarterly series up to the third quarter of 2008.

Key recent developments in the Jersey economy include:

• In 2007 Jersey's GVA increased by 7%, similar to the real-term increase seen for 2006 and greater than that seen in previous years;
• the profits of the Finance sector rose to about £1.5 billion in 2007, representing a real-term increase of 12% on 2006;
• in June 2008, a total of 56,630 people were employed in Jersey, about 1,520 higher (3%) than a year previously;
• the latest annual change was made up of a net increase of 1,520 in the private sector and essentially no change in the public sector;
• in September 2008, the headline rate of inflation, as measured by the Retail Price s Index, RPI, stood at 6.4% with the introduction of a Goods and Services tax (GST) in May 2008 accounting for 1.9 percentage points of this increase;
• in the twelve months to September 2008: the RPI(X) which excludes house purchase costs rose by 6.7%; and the RPI(Y) which excludes house purchase costs and indirect taxes (such as GST and impôts) increased by 4.9%;
• over the twelve months to June 2008, average earnings in Jersey grew at an annual rate of 4.3%;

• the average price of dwellings sold in Jersey in the third quarter of 2008 was about a fifth (21%) higher than the average in Q3 2007; however, the annual rate of increase has slowed compared to the previous two quarters and the average turnover of properties was about a third lower than the long-term average;
• overall, the average annual growth rate in house prices since 1990 (7.7%) is greater than that of earnings (5.2%) and retail prices (4.2%) over the same period.

Section 1: Economy

Overview

The concept of Gross Value Added (GVA) provides an appropriate measure of economic activity in Jersey. In essence, GVA is the sum of profits of businesses and earnings of employees. In 2007 total GVA for Jersey was £4.1 billion.

Economic activity can also be considered in terms of the total income of resident businesses and individuals. This aggregate measure is known as Gross National Income (GNI) and is derived from total GVA by subtracting income  earned  in  Jersey  by  non-Jersey  owned  businesses  and  adding income earned overseas by Jersey businesses and resident individuals. In 2007 Jersey's GNI was £3.7 billion.

In recent years Jersey's GNI per capita has been amongst the highest in the world[1], and is shown for 2007 in Figure 1.1 in terms of $US for comparative purposes.

Figure 1.1: Jersey GNI per capita in 2007 (PPP $US)[2]

80,000

64,000

62,000

60,000

51,000

49,000

46,000

44,000

40,000 37,000 35,000 34,000 34,000 33,000 20,000

10,000 0

Lux. Jersey Gsy. Singp. USA Switz.Ireland IOM UK France EMU World

Development of the Jersey economy

The economy of Jersey has seen a great deal of change during the past few decades as markets have become more international and global travel has increased.  This  has  meant  that  traditional  Jersey  industries  such  as agriculture  and  tourism  are having  to  operate  in  an  increasingly more competitive environment and are no longer the dominant industries in Jersey.

This  development  of  the  international  nature  of  business  enabled the single-most dramatic change to the Jersey economy to take place: over the past 20 to 30 years the Financial services sector (banking, trust and company administration, fund management,  accountancy  and  legal  activities)  has grown such that it now accounts for more than half of the total economic activity in Jersey (Figure 1.2) and employs about a quarter of the workforce.

Figure 1.2: Gross Value Added by sector[3], 2007

Agriculture, 1% Manufacturing, 1%

Electricity, gas and

Public administration,  water, 1%

Other business  7% Construction, 5%

activities , 7% Wholesale and retail,

6%

Other business  Hotels, restaurants activities: rental, 11% and bars, 3%

Transport, storage and communication, 4%

Finance, 53%

Total Gross Value Added £4.1 billion

Reliable data on the size and sectoral distribution of the Jersey economy only exist from 1998 onwards, with the latest data being for 2007[4]. As such, it is difficult to track historic developments in the economy in detail; nevertheless it is possible to examine more recent changes for individual sectors and for the economy as a whole.

Figure 1.3  shows  the  annual  percentage  change  of GVA  in real  terms between 1999 and 2007. In 2007 Jersey's GVA increased by 7%, similar to the real-term increase seen for 2006 and higher than that seen in previous years.

Figure 1.3: Annual percentage change in Gross Value Added (real terms)

8

6

4

2

0 -2 -4 -6

1999 2000 2001 2002 2003 2004 2005 2006 2007

Historically, there has been a strong relationship between the finance industry and the overall Jersey economy, as illustrated in Figure 1.4.

Figure 1.4: Gross Value Added in real terms: constant (2003) prices

4,000

3,500

3,000

2,500

2,000

1,500

1,000

Total

500 Finance sector Non-Finance sectors

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Between 1998 and 2000 the GVA of the finance industry grew by 17% in real terms and this was reflected in the overall GVA for Jersey, which increased by 9% over the same period. When the GVA of the finance sector fell by 17% between 2000 and 2004, total GVA correspondingly fell by 10%. In contrast, over the whole period, 1998 to 2004, the non-finance half of the economy remained relatively constant in real terms.

The increase in overall GVA seen in 2007 (up 7%) was due to growth in both the Finance and non-finance sectors, up 9% and 6%, respectively. This is in contrast to 2006 which saw a similar overall growth rate, of 7%, but was comprised  of  a  14%  growth in  the  Finance  sector  whilst the non-finance sectors remained essentially flat overall.

A further element impacting strongly on the Jersey economy, but not directly apparent in  Figures 1.3  and 1.4,  is  the  performance  of  global  financial markets.  This  point  is  important  because of the  interrelation  of  financial markets. Although the finance industries in Guernsey and the Isle of Man are structurally different to Jersey's, and are only approximately one-third the size, it is informative to look at the relative performances. The finance sector in Guernsey saw small real growth of almost 2% in 2007, whilst the real-term growth of the Isle of Man's finance sector was about 4% over the twelve months to March 2007.

Economic sectors

Whilst the performance of the whole Jersey economy has mirrored that of the Finance sector during the past nine years, there have been differences in the performance of other individual sectors as measured by GVA (see Table 1.1 and Annex Tables A1a and A1b).

Table 1.1:  GVA by sector in real terms:  constant (2003) values

Sectoral GVA figures have been rounded to the nearest £ million.

Long-term trends

Over the entire period from 1998 to 2007, one of the most notable changes in real-term  GVA  has  been  the  growth  in  "Other  business  activities".  The business activities component of this sector has grown by about a third (33%) in real terms, from around £200 million in 1998 to £266 million in 2007.

Other  significant  longer  term  changes  include  the  general  decline  in  the Agriculture sector, decreasing  by  about  15% over  the  nine-year  period. Manufacturing has also seen year-on-year falls, although restructuring and reclassification of activities have been important factors for this sector, which in 2007 was about a third smaller, in real terms, than in 1998.

Electricity, gas and water and Hotels, restaurants and bars saw real-term falls of about a fifth from 1998 to 2007. In contrast, Public administration and Construction both experienced real-term growth over the nine-year period (28% and 22%, respectively). Although the Finance sector has experienced conflicting fortunes between 1998 and 2007, overall it grew by about 22% in real terms over the period.

More recent trends

To understand the current state of Jersey's economy it is best to focus on the most recent years. Figure 1.5 shows the change in real-term GVA by sector for each of the past four years.

Figure 1.5: Real-term % change in GVA for consecutive years, 2003-2007

15 03-04

• 04-05
  • 05-06

10 06-07

5

0

-5 -10 -15

The Finance sector experienced real-term growth between 2006 and 2007 (up 9%) as did Other business activities (up 10%), whilst Construction grew by 8% over  the  same  period.  Wholesale  and  retail,  Public  administration  and Agriculture each saw real-term growth of around 5% in 2007.

In contrast, Manufacturing recorded a decline in real-term GVA of 5% between 2006 and 2007 and Electricity, gas and water decreased by 3% over the same period.

Whilst GVA, which is the sum of company gross operating surplus (profits) and compensation of employees (wages, pensions, etc.), is a good measure of the overall performance of an economy, some care is needed in interpreting changes for certain sectors. For example, between 1998 and 2007 the real-term GVA of the Electricity, gas and water sector fell by about a fifth; this fall coincided with a period of significantly reduced employment in the sector, resulting in the compensation of employees component of GVA falling in real terms. However, as described below, real-term GVA per employee in this sector was about the same in both 1998 and 2007.

Similarly, by convention, the GVA of the Public sector is determined as only the compensation of its employees; the Public sector is defined to consume all of its own output. Thus the 28% growth between 1998 and 2007 in the GVA of the Public sector reflects increased employment in the sector and the extent to which wage settlements have been above RPI(X), the measure used to deflate current value GVA to real terms. These two employment factors are also pertinent for other sectors, but with the additional factor of changes in company profits.

Gross Value Added per employee

Another way of assessing the contribution which sectors make to the overall economy is to look at GVA per employee, derived by dividing GVA by the number of full-time equivalent[5] (FTE) employees. GVA per employee is not quite an absolute measure of productivity, as it excludes capital, but it can be viewed as a proxy since it does show the value of economic output produced per employee.

Furthermore, it is worth pointing out that GVA per employee is conceptually different to GNI per capita. The latter is a measure of the total value of economic activity of Jersey-owned businesses and resident individuals divided by the total Island population and as such is a smaller number than GVA per employee (which measures economic output of those who are actually employed).

Figure 1.6: GVA per full-time equivalent employee in 2007 (current values)

200 160 120 80 40 0

Averaged over  all  sectors (and  excluding  the  rental  component  of  Other business activities), GVA per employee in 2007 in current year values was about £78,000 per FTE (Figure 1.6). However, the mean for the Finance sector was more than four times that of all the other sectors, about £181,000 per FTE for the Finance sector, compared with around £42,000 for the other sectors.

The lowest values of GVA per employee were seen in the Hotels, restaurants and bars (£25,000 per FTE), Agriculture (£31,000 per FTE) and Wholesale and retail sectors (£35,000 per FTE).

The longer term trend in real-term GVA per employee for the finance and the non-finance  sectors is  shown  in  Figure 1.7, with  the  underlying  data  in Annex Table A2. The most dramatic changes have occurred in the Finance sector: GVA per employee in this sector grew from £152,000 (in 2003 values) in  1998 to  a  real-term  peak  of  £170,000  in  2000, before  falling in  each subsequent  year up  until  2003, to a  value  of  about  £140,000  per  FTE. GVA per FTE for the sector then increased in each year from 2003 to date, and stood at £162,000 per FTE (in 2003 values) in 2007.

Over  the  whole  period  1998  to  2007 the  sector  experienced  a  real-term increase in GVA per employee of around 7%; more recently the sector saw real-term growth in GVA per FTE of about 3% from 2006 to 2007.

Over the past nine years, the best performing sectors in terms of real-term growth in GVA per FTE have been Construction (22%) and Other business activities (11%). In contrast, Agriculture fell in terms of GVA per FTE (by 4%) with Electricity, gas and water and Hotels, restaurants and bars remaining essentially stable from 1998 to 2007.

In the latest year, 2007, the largest real-term growth (as measured by GVA per FTE) was seen in the Construction sector (8%) and Wholesale and retail (6%), whereas Manufacturing, Hotels, restaurants and bars and Electricity, gas and water each saw real-term declines.

Figure 1.7: GVA per FTE in constant (2003) values

200 All sectors

Finance sector

175 Non Finance sectors 150

125

100

75

50

25

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Finance sector profits

As noted previously, the performance of the overall Jersey economy during the past few years has reflected that of the Finance sector. The estimated total  annual  profit  of  Jersey's  financial  services  sector  in  2007  was £1,460 million, representing a nominal increase of 12% on 2006. This latest increase constitutes the third consecutive annual rise in total profit; 2005 had seen the first rise in total profit for five years and was followed by a large increase (of 25%) in 2006 (see Figure 1.8). Previously, a peak in 2000 was followed by three years of falls of around 4 to 5% per annum before a relative stabilisation in 2004.

Figure 1.8: Total Net Profit in the Finance Sector in current year values

1,600 1,400 1,200 1,000 800 600 400 200

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

In terms of the various sub-sectors within Jersey's Finance industry, between 2006 and 2007 the total profits recorded by banks rose by 13% and by 17% for accountancy firms. Trust and company administrators (including legal firms) also saw profits increase, to £142 million (up 16%). In contrast, profits for fund managers fell by 9% in 2007, following a large increase (of 35%) in 2006.

Section 2: Employment

Overview

In relative terms, employment levels in Jersey are high. At the time of the last Jersey census in 2001, 82% of people of working age in Jersey were economically active (i.e. in work or looking for work) compared to 78% in the UK. The same differential of 4 percentage points applied to both sexes: the economic activity rates of men and women were 87% and 76% respectively in Jersey, compared to 83% and 72% in the UK. These activity rates resulted in there being an average of 1.24 full-time equivalent employees per household in Jersey compared to 0.96 in the UK[6].

The 2008 round of the Jersey Annual Social Survey recorded an overall economic activity rate for adults in Jersey in the summer of 2008 of 85% (comprising rates of 89% and 81% for men and women, respectively). These increased rates compared with 2001 are consistent with the rise in total employment in Jersey recorded during 2008. The economic activity rate in the UK for the three month period June to August 2008 was 79% (comprising rates of 84% for men and 74% for women).

In June 2008, a total of 56,630 people were employed in Jersey, an increase of about 1,520 on June 2007 and representing the highest annual increase for ten years. Of the 56,630 employed in June 2008, 49,900 (88%) were in the private sector and 6,730 (12%) were in the public sector.

The latest annual change was made up of a net increase of 1,520 in the private sector and essentially no change in the public sector. Total and private sector employment in Jersey was substantially constant between 1999 and December 2002 but decreased during 2003 and 2004. Since 2005, however, total employment has seen an ongoing increase with June 2008 representing the highest June figure for at least a decade.

On a full-time equivalent (FTE) basis, total employment was 46,910 in June 2008. Data on an FTE basis are presented in Annex Table A3a.

Seasonality in employment

As Figure 2.1 illustrates, there is a fair degree of seasonality in the Jersey labour market, with around 3,500 more people employed in the summer of 2008 than in the winter of 2007. Such seasonal variation is largely a result of agriculture and tourism: the Hotels, restaurants and bars sector employed about 1,550 more people in June 2008 than in December 2007 with Agriculture around 760 more. Some other sectors also display some seasonal variation, driven by tourism, but generally less marked.

The extent of the seasonal variation in employment has lessened in recent years as the Agriculture and Hotels, restaurants and bars sectors have seen real-term economic decline (as discussed in Section 1). In 1996 the total difference between summer and winter levels approached 5,000, including a difference of some 3,000 in Hotels, restaurants and bars alone.

Over  the  past  three years  there  has  been  some  evidence  of  reverse seasonality in the Wholesale and retail sector, with higher employment in December than in June of each year; since 2004 around 150 to 250 more people have been employed in the sector in each December. This change is largely due to the growth of the fulfilment sub-sector of retail, the business peak for which is in the run-up to Christmas. In analysing trends between the predominantly seasonal and non-seasonal sectors, such reverse seasonality tends to offset the more traditional form of seasonality seen in other sectors.

Figure 2.1:  Number of people in employment

As  described  above,  total  employment  grew  by  1,520 in  the  year  to June 2008.  However,  splitting  the  private  sector  into  seasonal  and non-seasonal activities enables the behaviour for the latter category to be examined on a shorter six-monthly timescale (Figure 2.2).

The latest increase of 1,520 on an annual basis consisted of an increase of 390 jobs in the predominantly non-seasonal sectors in the period June 2007 to December 2007; an increase of 1,120 in the predominantly non-seasonal sectors between December 2007 and June 2008; and no significant increase in the seasonal industries compared to the previous June.

Figure 2.2:  Change  in  employment  in  seasonal  and  non-seasonal private sectors, June 07 to June 08

Total change   Seasonal   Non-seasonal   Non-seasonal Jun 07 - Jun 08 Jun 07 - Jun 08 Jun 07 - Dec 07 Dec 07 - Jun 08

1,600 1,520

1,400

1,200 1,120 1,000

800

600

390 400

200

0 0

The net increase in employment of 390 in the non-seasonal sectors during the last six months of 2007 was driven by increases of 440 in Finance and of 260 in  the  fulfilment  area  of  Wholesale  and  retail.  A  net  decline  for  the remainder of this category is indicative of residual seasonal influences within some sectors, e.g. car hire in miscellaneous business activities[7] and sporting and entertainment activities in Education, health and other services.

The  net  increase  of  1,120 staff  in  the  first  six  months  of  2008  for  the non-seasonal sectors included notable increases for Miscellaneous business activities (+280, across the sector) and private sector Education, health and other services (+250) particularly for residential homes and nurseries as well as the seasonal effects of some leisure activities included in this sector. Both the  Construction  and  Finance  sectors  saw  increases  of  around 160 employees in the first six months of 2008.

Employment by sector

As Figure 2.3 illustrates, almost a quarter of Jersey's labour force is employed in the Finance sector. The next largest sectors in terms of employment are Wholesale and retail, accounting for almost a sixth of total employment (15%), and the  Public  sector  (12%,  excluding States Trading  Committees[8])  and Hotels, restaurants and bars (11%).

Figure 2.3:  Percentage employed by sector, June 2008 headcount basis

Education, health and

other services (private  States non-Trading

sector), 9% Departments, 12%

Miscellaneous  Agriculture and business activities,  fishing, 4%

6% Manufacturing, 3%

Electricity, gas and water, 1%

Construction and quarrying, 9%

Financial and legal

activities, 23%

Transport, storage and communication, 5%

Computer and related

activities, 1% Wholesale and retail

Hotels, restaurants  trades, 15%

and bars, 11%

The  shift in  employment  in  Jersey  over  the  past  nine years  towards  an increasingly more service-oriented economy is reflected by Figure 2.4 and Annex Table A3a.

Figure 2.4: Change in employment by sector, 1996 – 2008

4,000

3,000

2,000

1,000

0 -1,000

-2,000

Figure 2.4 indicates the decline in employment in Agriculture, Manufacturing and tourism-oriented activities and the contrasting growth in Financial services and in public and private sector services / activities.

Between 1996 and 2008 employment in the Finance sector increased by almost 3,500. The service sectors serving both businesses and households also grew;  Other  business activities  (comprising private sector Education, health and other services, Computer and related activities, and Miscellaneous business  activities  sectors)  have  recorded an  increase  in  employment  of about 2,000 since 1996. In contrast, over the same period, employment in Hotels, restaurants and bars has fallen by around 1,600, whilst around 150 fewer people were employed in Agriculture and 900 fewer in Manufacturing.

Figure 2.5 illustrates the changes in employment by sector over the twelve months to June 2008, enabling comparisons to be made between the overall trends seen during the past twelve years with more recent changes.

Figure 2.5: Change in employment by sector, 2007 – 2008

2,000

1,500

1,000

500

0

-500

In the twelve months to June 2008, Finance recorded the largest increase of any sector (up by 600 employees, corresponding to a 5% increase). Other notable annual increases occurred in Miscellaneous business activities (up 300  employees,  9%)  and Wholesale  and retail (up  240 employees,  3%). Within  the  Wholesale  and  retail  sector, a  total  of  660  employees  were employed in fulfilment activities in June 2008, a decrease of 160 on the previous December, reflecting the seasonal nature of this sub-sector, but up by almost 100 on June 2007. Hotels, bars and restaurants reported small net decreases on an annual basis while Electricity, gas and water remained at essentially the same level of total staff.

Unemployment

The number of people registered as unemployed in Jersey in June 2008 was 440. This number is somewhat greater than that seen previously over the past 12 months, the increase being largely the result of definitional changes due to the introduction of a new Income Support system in 2008[9] .

Figure 2.6 shows that registered unemployment in Jersey was relatively stable throughout 2005 and 2006, at around 400 per month, and then fell in 2007 and  early  2008 before  rising  most  recently  due  to  the  aforementioned definitional changes.

Figure 2.6: Registered unemployment in Jersey: 1990 – 2008

1,200 1,000 800 600 400 200 0

The internationally comparable measure of unemployment is the proportion of unemployed people (of all those who are economically active i.e. seeking work or waiting to take up a job)[10]. The Jersey Annual Social Survey (JASS) measures ILO unemployment in Jersey and enables the effect of changes in the Island's economy on unemployment to be monitored on an annual basis.

In  the  summer of  2008 Jersey's  preliminary  ILO  unemployment  rate,  as measured  by  JASS, was  slightly  greater  than  2%,  a  similar level  to  that recorded  by  the  2001  Census  (2.1%).  However,  Jersey's  economy  had undergone both a downturn and recovery in the interim between these two point-in-time measures. For comparison, the ILO unemployment rate for the UK was 5.7% for the three month period June to August 2008.

Section 3: Price s and Earnings

Retail Price s Index (RPI)

The Retail Price s Index (RPI) is one of the longest standing data series produced in Jersey, dating back to 1947. The RPI measures changes in the cost of a representative selection of goods and services bought by Jersey households. Over 500 items are included in the Index, ranging from food and drink to Parish rates and rent, larger goods such as fridges and TV's, and services such as dry cleaning and hairdressing.

The RPI is an index number based on a point in time (currently June 2000 being set equal to 100) and measures the average change in price for all these items. The rate of change in the RPI, which is quoted as a percentage, normally compares the current index to the same quarter a year previously and hence measures the average annual rate at which prices are changing (also known as the rate of inflation).

Figure 3.1:  All-Items Retail Price s Index (RPI) 1948 to 2008

160 140 120 100 80 60 40 20 0

As illustrated by Figure 3.1, the last six decades can essentially be split into two periods in the context of the Jersey RPI: a period running post-war to 1973  during  which prices  increased  by  around  4%  per  year on  average, followed by a period of average annual increases of around 8% running from 1974 until the present. Many factors generally contribute to the rate of change of consumer prices, but to identify a reason for the turning point in the series it is difficult to look beyond the 1973 oil crisis (oil prices quadrupled between 1972  and  1974),  especially  when  at  this  time the  Jersey  economy  was particularly heavily dependent on oil products for energy consumption.

Another way to view the long-term trend in RPI is to consider the annual percentage change for a given year (Figure 3.2). This perspective shows a number of distinct periods: inflation running at below 5% until the early 1970's, followed by a sustained period of high inflation of over 10% per year until the early 1980's; the late 1980's and early 1990's were another period of high inflation, whilst the last ten years or so have seen increases back at around 3 to 5% per year.

In September 2008, the annual increase in the RPI was 6.4% compared to 5.6% for the twelve months to June and 3.2% for the twelve months to March.

Figure 3.2: Annual percentage change in RPI

25

20

15

10

5

0

For the most recent annual change, to September 2008, a key contributor to the change in the RPI was the introduction of a Goods and Services Tax (GST) in May 2008, which contributed 1.9 percentage points to the annual increase of the RPI (spread across the groups).

In  addition  to  the  introduction  of  GST,  key  drivers  to  the  annual  rate  of increase were:

• Food costs: increased  by  13%  compared  to  September  2007, contributing 1.4 percentage points of the overall annual increase in the RPI. Price rises were seen across the group, notably for fresh meat and cereals.
• Motoring  costs: increased  by  10%  compared  to  September  2007, contributing 1.1 percentage points to the overall RPI. The key driver in this group was the price of motor fuels, with petrol and diesel up by about 20p and 26p per litre respectively (of which 2p per litre was due to increases in impôts) compared with September 2007 and, reflects the higher global oil prices seen on an annual basis.

• Fuel and light: increased by about a fifth (21%) on average over the twelve months to September 2008 and contributed 0.7 percentage points. The increase seen by this group was largely the result of a considerable rise in the cost of heating oil, up by 59% on an annual basis and reflecting global oil prices, as well as a 25% increase in gas prices over the same period.
• Housing costs: the Housing group as a whole increased by 2.8% during the twelve months to September 2008, contributing 0.6 percentage points to the overall annual increase in the RPI, with house purchase costs, driven by increased house prices, contributing 0.2 percentage points. This group also includes Parish rates which saw an average increase of almost 3% compared with a year earlier.

Overall, average price increases were seen for the majority of the other groups. In contrast to the other groups, the price of Leisure goods (particularly of audio-visual equipment, toys and sports goods) fell by 2%, on average, over the twelve months to September 2008.

Several other indices are produced on a quarterly basis which help the understanding of inflation in Jersey. The RPI is often known as the "all-items" or "headline" RPI because it comprises a representative selection of all the elements of a household budget. The RPI(X), where the X stands for eXcluding house purchase costs (measured by the interest paid on an average mortgage) is known as a measure of "underlying rate of inflation".

The annual change for RPI(X) in September 2008 was 6.7% with the main contributor to this annual rate of increase, as for the RPI, being the introduction of GST, accounting for 2.1 percentage points of the overall increase (spread across the groups).

A new measure of underlying inflation, RPI(Y), was introduced in Jersey in December 2007. The RPI(Y) excludes mortgage interest payments as well as the effect of indirect taxes i.e. Parish rates, Impôts (on tobacco, alcohol and motor fuels), VRD, Air Passenger Duty and GST. In the year to September 2008 the RPI(Y) increased by 4.9%.

Average Earnings

The principal use of the Index of Average Earnings is to measure the average rate of change of earnings in order to up-rate old age pensions. The Index is compiled using data from a matched-pair sample survey of employers who provide data on the monthly or weekly earnings paid to their employees, and the number of FTEs covered by those earnings.

Figure 3.3: Annual percentage changes in the Index of Average Earnings

by sector 2008[11]

10 9 8 7 6 5 4 3

2 1 0

Analysing the data by sector (Figure 3.3) shows that Average earnings in the private sector increased by 4.2% over the year to June 2008, whilst the public sector saw average earnings increase by 4.9% largely due to annual pay awards (scheduled and retrospective) being implemented for the majority of public sector employees.

The highest annual increases in average earnings were seen in Agriculture (6.5%), driven predominantly by the 7.4% increase in the minimum wage[12] implemented in April 2008.  Hotels, restaurants and bars saw an annual increase of 5.1%, with the latest increase in the minimum wage being a key factor.

Average  earnings in  Financial  services rose  by  4.6%,  a  rate of  increase slightly below that seen in 2007 (4.9%). The majority of the other sectors recorded increases of around three and four percent.

From the data collected to produce the Index of Average Earnings it is also possible to estimate levels of average pay. Such figures are informative in that they illustrate the difference in levels of pay across sectors, with a statistical uncertainty  (standard  error)  of  approximately  £20. Hence,  the  figures  for weekly earnings shown in Figure 3.4 should be considered as reasonable approximations, but with not quite the same degree of accuracy attributable to the annual percentage changes shown in Figure 3.3. It is equally important to note, that the average levels of pay are per full-time equivalent employee (FTE). Therefore, someone working part-time would receive about half the levels indicated, on average.

Figure 3.4: Average earnings by sector in June 2008

1,000 800 600 400 200 0

820 800

In June 2008, the average weekly earnings for full-time equivalent employees at the sectoral level ranged from £820 per week in Financial services and £800 in the Public sector to £340 per week in Hotels, restaurants & bars (Figure 3.4; underlying data are shown in Annex Table A5).

Overall the average weekly earnings per FTE was around £600 per week. However, this figure excludes bonuses paid in the finance sector (which are excluded from the average earnings measure due to their potentially volatile nature).  The  annual  Survey  of  Financial  Institutions  in  Jersey[13] enables estimation of the average bonus paid per FTE employee working in the sector; for 2007 bonus payments increase the average earnings of FTE workers in the Finance sector by around £110 per week.

Earnings and prices

In examining the change in the RPI and in average earnings, it is clear that often in the past, most likely because of economic growth, earnings in Jersey have, on average, increased at a faster rate than prices (Figure 3.5).

Between 1990 and 2008 the RPI in Jersey more than doubled, i.e. the index increased by 110% and corresponding to an average annual rate of increase of 4.2% per  year. However,  over  the  same  period,  average earnings increased by 151%, (i.e. more than doubled overall) and corresponding to an average annual increase of 5.2% per year.

In 13 of the past 18 years since 1990 average earnings in Jersey increased faster than retail prices (see Figure 3.6).

More recently the rates of increase of earnings and prices have been closer: over  the  past  five years (2003 - 2008) the  RPI  has  increased  by  22% (corresponding  to  4.0% per  annum, on  average) and  earnings  by 23% (corresponding to 4.2% per annum on average). In the year to June 2008 the RPI increased at a faster rate (by 5.6%) than average earnings (by 4.3%).

Figure 3.5: Index of Average Earnings and the RPI

300

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200

150

100

50 Average earnings

RPI

0

Figure 3.6: Annual percentage changes in the Index of Average Earnings and in the RPI at June each year

10 Average earnings RPI

9

8 7 6 5 4 3 2 1 0

Given that the average earnings data relate to changes in the year to June, it is also informative to compare changes in average earnings which occurred throughout the period June to June, with the average of the annual changes in the RPI published between each June[14].

On this basis, the time-weighted average change in the RPI was 4.1%. Thus, average earnings over the twelve months to June 2008 increased by 0.2 percentage  points  more  than  the  average  annual  changes in  the  RPI published during this period. The corresponding increase in the underlying rate  of  inflation  (the  change  in  the  Retail   Price s  Index  excluding  house purchase costs, RPI (X)) was 2.6%. The Index of Average Earnings thus increased by 1.7 percentage points more than the average annual changes in RPI(X) published during the twelve months to June 2008.

House Price s

The measurement of dwelling prices in Jersey underwent a thorough review in 2002, resulting in a more extensive measure which includes both flats and houses, as well as a breakdown by size of property (number of bedrooms).

Figure 3.7: Jersey House Price Index (average for 2002=100)

180 160 140 120 100 80 60 40 20 0

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008

As Figure 3.7 indicates, the Jersey House Price Index was essentially flat during 2002 and 2003, increased at a rate of around 3% per annum in both 2004 and 2005, at about 6½% in 2006 and at 13% in 2007 on a year-on-year basis. However, it is apparent from Figure 3.7 that since the latter half of 2007 a greater rate of price growth has occurred.

The mix-adjusted average price for the latest quarter, Q3 2008, was about a fifth (21%) higher than that recorded for Q3 2007 (corresponding to about £87,000). This latest annual rate of increase is slightly less than that recorded in the previous two quarters, which saw annual rates of increase of 28% and 24%, respectively.

Property type specific movements can be seen in Figure 3.8 for the past six years.

Figure 3.8: mean prices (£,000) for individual property types

800 700 600 500 400 300 200 100

0

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2002  2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008

4-bed houses 3-bed houses 2-bed houses 2-bed flats 1-bed flats

The average price of 1-bedroom flats increased throughout 2007 and notably in the first quarter of 2008. The latest quarter recorded a mean of £229,000, some 26% higher than that seen in Q3 2007 but similar to the level seen in Q2 2008.

The mean price of 2-bedroom flats remained essentially stable during 2007. The level of mean price has been higher in 2008 to date, with Q3 2008 recording an average price of £322,000, about 24% higher than Q3 2007. However,  prices  have  remained  essentially  unchanged  compared  to  the previous quarter. It is worth noting that the higher mean price level seen during 2008 has particularly been driven by new sites coming onto the market.

The trend in prices for 2-bedroom houses has been broadly upward for the past three years. The mean price of 2-bedroom houses sold during the third quarter of 2008 was £447,000. This mean price is about a fifth (22%) higher than  that  for  Q3  2007.  This  property  type  exhibited  the  largest  quarterly change  of  all  of  the  dwelling  categories  (18%);  however  there  was  a particularly low number of transactions of this property type taking place in the latest quarter.

3-bedroom houses account for almost half of all residential transactions in Jersey. Following a small ongoing increase in average price from 2002 to 2005, 2006 saw a greater annual increase, of about 7% and 2007 saw the rate  rise  again  (to  about  14%).  The  mean  price  exceeded  half  a  million pounds for the first time in Q1 2008 and the latest quarter recorded a mean price of £541,000, a fifth (20%) higher than in Q3 2007. As for the 2-bedroom houses there was a notably lower number of transactions of this property type in the latest quarter.

The trend in average price for 4-bedroom houses has been broadly upward since 2002 and the latest quarter experienced an annual increase of 18%. However, the mean price recorded for the third quarter of 2008 was £706,000, similar to the previous quarter.

From the perspective of turnover, 188 eligible[15] properties were reported as being sold in Q3 2008. Some interpretation is required in making comparisons of turnover between quarters due to the variation in the frequency of sittings of the Royal Court each quarter (when property transactions take place) and also the marked seasonality of the raw data. However, taking these facts into account, the seasonally adjusted turnover in the third quarter of 2008 was about  a  third  (33%)  lower  than  the  long-term  average (Figure  3.9).  This decrease  was  predominately  as  a  result  of  lower  turnover  of  houses (particularly 2- and 3-bedroom properties) in Q3 2008 compared with previous quarters.

Figure 3.9: Seasonally adjusted quarterly turnover 2002 to Q3 2008

50 40 30 20

10 0

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008

Comparison with the UK and Guernsey

The price of property in Jersey can be compared to that in the UK. Figure 3.10 demonstrates long-term house price movements in Jersey and the UK, from 1990 to date.

Until 2000, the price of property in Jersey had been increasing at a greater rate than that in the UK, with the largest difference between the two rates of increase occurring in 1998.  From 2000 to 2007 the rate of increase in the UK was generally greater than that for Jersey; however, in 2008 the situation was reversed with Jersey's annual rate of increase being greater than that for the UK. This behaviour is further reflected in Table 3.1.

Figure 3.10 Jersey and UK House Price Indices 1990 - 2008

400 350 300 250 200 150

100 50 0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

In Q3 2008 the average (mix-adjusted) price of dwellings sold in the UK fell on an annual basis, being about 4% lower than a year earlier. Price s fell in all regions of the UK on an annual basis, with the largest fall being seen in Northern Ireland (down by 14%).

Table 3.1: Mixed-adjusted average house prices £,000

The average (mix-adjusted) price of dwellings sold in Jersey during the third quarter of 2008 was more than double that for the UK and about 50% higher than in Greater London.

The overall median price of dwellings sold in Guernsey[16] in the third quarter of 2008 was  £352,000,  about  16%  higher  than  Q3  2007.  The  turnover  of properties in Guernsey saw a similar reduction to that seen in Jersey; the number of local market transactions in Q3 2008 being about a third less than a year earlier.

Jersey Private Sector Rental Index[17]

In the third quarter of 2007 a Private Sector Rental Index was introduced for Jersey[18] (see Figure 3.11). As well as an overall mix-adjusted index, separate indices are also produced for "Flats" (bedsits, 1-, 2- and 3-bedroom) and "Houses" (1-, 2-, 3-, and 4-bedroom). The average (mean) rental price of dwellings is calculated by weighting together the average rents for each of the above categories.

Weighting  each  property  type  by  a  constant  proportion  ensures  that  the average rental cost in a given period is independent of the particular "mix" of properties recorded in that period. On average, there are about 1,800 and 660 private sector lease transactions per year for flats and houses respectively. The  index  is  weighted  accordingly,  with  flats  accounting  for  around three-quarters of the total index.

The resulting mix-adjusted average rental price is converted into the Jersey Private Rental Index (based to 100 for calendar year 2002).

Figure 3.11: Jersey Private Sector Rental Index (Average 2002 = 100)

150 125 100 75 50 25 0

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008

As illustrated by Figure 3.11 average rents in the private sector, as measured by the Jersey Private Sector Rental Index, increased by about 4% between 2002 and 2003. Rents were then essentially stable between 2003 and 2006 and then the annual rate of increase rose in 2007 to about 8%. Average rents in the third quarter of 2008 were about 5% higher than the average for the third quarter of 2007 but were at a similar level to the previous quarter.

RPI, earnings and house prices

In the early 1990s retail prices, house prices and average earnings in Jersey initially  increased  at  similar  rates  (Figure 3.12).  However,  the  economic slowdown between 1993 and 1996, and concurrent tightening of the labour market, saw earnings increase at a faster rate than both retail and house prices. Earnings continued to grow at a faster rate than retail prices in the subsequent recovery, which was driven locally by the growth of the finance sector.

House prices, however, underwent a considerable increase (more than 10% annual growth for three years) at the end of the last decade, whilst the latest annual increases for each quarter of 2008 have been above 20%.

Overall, the average annual growth rate in house prices since 1990 (7.7%) is greater than that of earnings (5.2%) and retail prices (4.2%).

This relative  behaviour  of  house  prices,  earnings  and  retail  prices is comparable to the UK, where average annual growth rates since 1990 are 6.6%, 4.3% and 3.0% respectively.

Figure 3.12: Indices of retail prices, average earnings and house prices

for Jersey, 1990 - 2008

400

350

300

250

200

150

Annex

Table A1a  GVA by sector in current values; £ million

Table A1b GVA by sector in real terms (constant values, 2003); £ million

(p): provisional

Table A2 GVA per FTE employee in real terms (constant values, 2003); £ thousand