Economists question the reliability of GDP figures

 
Tim Wallace
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THE UK might not actually be in a recession, economists said yesterday, fearing the Office for National Statistics (ONS) is using dodgy data to work out the GDP figures – and if they are correct, the ONS might have delivered a blow to confidence by declaring a recession incorrectly.

Survey data over the past months has indicated a relatively healthy recovery across the services, manufacturing and construction sectors – all of which came in for a beating according to the ONS.

Manufacturing output increased modestly in the last three months, according to the Confederation of British Industry’s industrial trends survey. A net balance of five per cent of manufacturers reported output growth, and a balance of 30 per cent plan to increase investment spending over the next 12 months.

Similarly Nationwide’s consumer confidence study, out today, showed sentiment rising to a nine-month high, in stark contrast with the official GDP data.

The ONS readily admits its initial estimate of GDP is made up of only 40 per cent of the final data, and so is prone to later revisions – the average revision is 0.2 percentage points, which could easily mean output was flat in the quarter.

“We know construction was weak in February, in part due to very bad weather, but it showed a strong rebound in March – and I suspect a lot of March data was not included,” said Chris Williamson, economist at Markit who compiles influential purchasing managers’ indices.

“It was the same in services and manufacturing.”

He points to the third quarter of 2009 as an example of major revisions, when initial estimates of another quarter of recession turned out to be wrong – the economy was actually growing again. At the time, the ONS said that the UK had shrank by 0.4 per cent; it now says it grew by 0.2 per cent.

“Business and consumer confidence flipped on the news that we were still in recession,” said Williamson.

However, the ONS disagrees – its data is taken from 40,000 sources, compared with up to 700 firms in any Markit survey and 394 companies in the most recent CBI study.

Furthermore, when it sees surprising results, as in yesterday’s construction figure, the ONS’s statisticians repeatedly check the data at its source.