The Macroeconomic Policy Outlook Real wages have been rising strongly over the past year, while productivity has fallen

The residual is the difference between the sum of the foregoing contributions and the change in the ONS official measure of the labour share. [...] FIGURE 5: The UK terms of trade have rebounded from the energy price shock The terms of trade and the relative price of gross value-added to CPIH 1.2 1.15 1.1 1.05 1 0.95 Terms of trade 0.9 Relative price of GVA to CPIH 0.85 0.8 2000 2004 2008 2012 2016 2020 NOTES: The relative price of gross valueaadded to CPIH is calculated as the ratio of the gross value added deflator (CGBV) to CPIH. [...] Moreover, in the long run, the UK’s specialisation in services exports, which tend to rise in price relative to the goods we import, is one reason why there has been an upward trend in the terms of trade over the whole of the period shown in Figure 5.3 3 This is important when we are thinking about the impact of the UK’s services specialisation in international trade. [...] As a result, the price of whole economy output relative to the CPIH is only weakly related to the terms of trade, and it has actually fallen in recent quarters.4 The share of output going to workers is close to recent historical averages Movements in the terms of trade are to some extent absorbed by firms – importers typically absorb a part of higher import prices in their margins, at least tempor. [...] This fraction is measured as the labour share.5 The labour share can vary quite a bit across countries, and over time, due to trends in technology, the composition of the economy within and between sectors, and the relative power of firms in product and labour markets.6 In many countries, the labour share has fallen in recent decades.7 It can also vary over the business cycle.