The UK Economic Stress Index (ESI) provides a monthly estimate of pressures in the UK economy. The following paragraphs explain the components of and methodology behind it. For suggestions, underlying data, and discussion about the index, please contact our colleague Edoardo Palombo, who develops and maintains it.

What does it measure?

The ESI captures pressures across the UK economy arising from a variety of sources in a single monthly measure. The index aggregates eight key variables that represent key signs of strain for both households and firms into one headline figure.  

The higher the ESI, the greater stress. A positive reading signals that the UK economy is experiencing higher-than-average levels of stress and a negative reading signals the opposite.

How is it constructed?

Firstly, each variable is detrended to eliminate any base effects from estimates. Then, we measure how divergent the current reading of each variable is from the norm, and then we average the eight variable indices to construct the ESI.

Some variables of economic stress are published infrequently. As such, we use an index of Google searches for the terms (or strongly associated terms) as proxies for their final readings as we await their publication. This way we can construct a more timely preliminary reading for the ESI that can give an instantaneous measure of economic stress. Once official data is available, we revise the ESI estimate to generate a final reading.

What are the variables analysed?

Here is a list of the variables we analyse to assess stress across households and firms:

1. Households: the unemployment rate, total real disposable income, amount of bank write-offs to households, and the number of mortgage repossessions.
2. Firms: total number of redundancies, FTSE All Share earnings, amount of bank write-offs to private non-financial corporations, and the number of company insolvencies.