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The cyclicality of mark-ups and profit margins for the United Kingdom: some new evidence

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  • Macallan, Clare

    (Bank of England)

  • Millard, Stephen

    (Bank of England)

  • Parker, Miles

    (Bank of England)

Abstract

In this paper, we assess the cyclicality of mark-ups and profit margins within the United Kingdom, at both the aggregate and industry level. We find that the private sector labour share moves countercyclically, suggesting that the aggregate mark-up moves procyclically. This result survives when we consider more sophisticated measures of the mark-up. And this result is also supported by industry-level data. We find that the aggregate market sector profit share moves procyclically and that the cyclical behaviour of profit margins is largely homogenous across industries. Nevertheless, there is some evidence that margins moved against the cycle in the late 1990s, starting to fall in 1997, whereas GDP growth did not peak until 2000. In tandem with these cyclical movements, we also find that the market sector profit share has trended upwards since 1970, in contrast to the aggregate mark-up, which fell over the same period.

Suggested Citation

  • Macallan, Clare & Millard, Stephen & Parker, Miles, 2008. "The cyclicality of mark-ups and profit margins for the United Kingdom: some new evidence," Bank of England working papers 351, Bank of England.
    • Handle: RePEc:boe:boeewp:0351
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    2. Salman Ahmad & Attiya Yasmin Javid, 2015. "Analysing the Price Cost Markup and Its Behaviour over the Business Cycles in Case of Manufacturing Industries of Pakistan," PIDE-Working Papers 2015:117, Pakistan Institute of Development Economics.
    3. Kapetanios, George & Millard, Stephen & Price, Simon & Petrova, Katerina, 2018. "Time varying cointegration and the UK Great Ratios," Essex Finance Centre Working Papers 23320, University of Essex, Essex Business School.
    4. Stirati, Antonella, 2014. "Real wages in the business cycle: an unresolved conflict between theory and facts in mainstream macroeconomics," MPRA Paper 53743, University Library of Munich, Germany.
    5. Dragan Tevdovski & Joana Madjoska & Petar Jolakoski & Branimir Jovanovic & Viktor Stojkoski, 2022. "Firm Profits and Government Activity: An Empirical Investigation," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 24(1), pages 43-82, June.
    6. Mustafa Utku Özmen, 2020. "In Pursuit Of Understanding Markups In Restaurant Services Prices," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(06), pages 1423-1437, December.
    7. Crafts, Nicholas, 2011. "British Relative Economic Decline Revisited," CAGE Online Working Paper Series 42, Competitive Advantage in the Global Economy (CAGE).
    8. Stephen Millard, & Margarita Rubio & Alexandra Varadi, 2020. "The impact of Covid-19 on productivity," Discussion Papers 2020/14, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    9. David Blanchflower, 2009. "Where Next For The Uk Economy?1," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(1), pages 1-23, February.
    10. Crafts, Nicholas, 2012. "Creating Competitive Advantage: Policy Lessons from History," CAGE Online Working Paper Series 91, Competitive Advantage in the Global Economy (CAGE).
    11. David Norman & Anthony Richards, 2012. "The Forecasting Performance of Single Equation Models of Inflation," The Economic Record, The Economic Society of Australia, vol. 88(280), pages 64-78, March.
    12. Jennifer V. Greenslade & Miles Parker, 2012. "New Insights into Price‐Setting Behaviour in the UK: Introduction and Survey Results," Economic Journal, Royal Economic Society, vol. 122(558), pages 1-15, February.
    13. Millard, Stephen & Rubio, Margarita & Varadi, Alexandra, 2021. "The macroprudential toolkit: effectiveness and interactions," Bank of England working papers 902, Bank of England.
    14. David Norman & Anthony Richards, 2010. "Modelling Inflation in Australia," RBA Research Discussion Papers rdp2010-03, Reserve Bank of Australia.
    15. Günes Kamber & Stephen Millard, 2012. "Using Estimated Models to Assess Nominal and Real Rigidities in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 97-119, December.
    16. Laurent Maurin & Moreno Roma & Igor Vetlov, 2011. "Profit Dynamics across the Largest Euro Area countries and Sectors," Bank of Lithuania Working Paper Series 12, Bank of Lithuania.
    17. Nir Klein, 2011. "South Africa: The Cyclical Behavior of the Markups and its Implications for Monetary Policy," IMF Working Papers 2011/204, International Monetary Fund.
    18. Crafts, Nicholas, 2012. "British relative economic decline revisited: The role of competition," Explorations in Economic History, Elsevier, vol. 49(1), pages 17-29.
    19. Antonella Stirati, 2016. "Real wages in the business cycle and the theory of income distribution: an unresolved conflict between theory and facts in mainstream macroeconomics," Cambridge Journal of Economics, Oxford University Press, vol. 40(2), pages 639-661.
    20. Greenslade, Jennifer & Parker, Miles, 2010. "New insights into price-setting behaviour in the United Kingdom," Bank of England working papers 395, Bank of England.
    21. Kosuke Aoki & Yoshihiko Hogen & Kosuke Takatomi, 2023. "Price Markups and Wage Setting Behavior of Japanese Firms," Bank of Japan Working Paper Series 23-E-5, Bank of Japan.

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    More about this item

    Keywords

    Mark-ups; profit margins.;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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