Simple measures of margins, such as the profit share, have been relatively resilient. And a recent survey by the Bank’s Agents suggested that margins on average were only a little below normal, despite the marked contraction in demand. 8 Why so? In part, aggregate margins may have been boosted by the sharp rise in sterling export prices following the depreciation of sterling. The increase in exporters’ margins may well have masked a decline in margins earned by domestic producers. 5  That is consistent with some surveys of companies’ capacity utilisation, which do not seem to have fallen by as much as the fall in output might suggest. 6  An important issue determining the evolution of supply in the medium-term is how quickly this mothballed capacity is either brought back on stream or eroded. This is likely to depend on the pace of the recovery. 7  Strictly, the model I am discussing talks about the mark-up over marginal cost, whereas margins are calculated with reference to average costs. Margins have the advantage that they can be calculated from companies’ published accounts, wheras mark-ups are not directly observable. But different estimates of the mark-up in the United Kingdom have appeared to move in a similar direction to margins across economic cycles. See Haskel et al (1995) and Macallan and Parker (2008).
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