s astonishing that anybody in the markets, think-tanks or politics still takes the Office for National Statistics’ growth figures seriously. Yesterday’s sweeping rewriting of history by our official number-crunchers shows yet again the stupidity of those who obsess about whether growth is coming in at 0.1 or 0.2 per cent.
The ONS has suddenly discovered that it missed tens of billions of pounds worth of output during the bubble. The cumulative gain in GDP from the first quarter of 2001 to the fourth quarter of 2007 has been revised up from 17.9 per cent to 21.1 per cent. The ONS now believes GDP fell 7.1 per cent (not 6.4 per cent) during the recession (which ended in the third quarter of 2009, three months earlier). Last but not least, the economy has bounced back 2.7 per cent since the recession, not 2.2 per cent. The upshot is that economy is now thought to be 4.4 per cent smaller than it was at its peak, a larger black hole which implies a larger structural deficit and a bigger problem for George Osborne.
These are massive changes. While the big picture may not have varied entirely (we still suffered from a massive bubble that went pop), virtually all of the detailed analysis that has been written about the economy over the past few years is now worthless. Far worse is that the authorities were using wrong numbers that underplayed the scale of the bubble when taking crucial decisions. Take the figures for the fourth quarter of 2007, highlighted by Citigroup: when the ONS first published the data, it believed that GDP was up by a strong 2.9 per cent year on year. The new data show GDP in that quarter rocketing a bubble-like 4.1 per cent. Consumer spending has been revised up during the boom years and cut since.
So what are we to make of yesterday’s cut to GDP growth in recent quarters, leaving Britain with a contraction of 0.5 per cent in the fourth quarter, growth of 0.4 per cent in the first quarter and 0.1 per cent in the second? It is clear from today’s revolutionary changes that these figures could easily be massively revised in the years to come. The huge attention given to them by politicians and the media yesterday was misguided. They can’t be used to determine policy. As it happens, I tend to believe that the second quarter figures are roughly correct – other, more accurate indicators suggest growth has ground to a halt. And that is precisely the point: those of us trying to determine what is actually happening to the economy should follow indicators that are much more reliable than the useless GDP stats. My favourite include private sector employment, the money supply, corporate bank deposits and purchasing managers indices. But whatever you do, stop obsessing with tiny, utterly unreliable and entirely meaningless changes in quarterly GDP.
CABLE RIGHT FOR ONCE
EVERY little helps. Vince Cable’s business department plans to make 36,000 small companies exempt from having to audit their accounts – a process that currently costs almost £10,000 per year. It will also allow 83,000 subsidiaries to opt out.
While it doesn’t go that far, this is nevertheless one of the few genuine deregulatory measures taken by a government that has otherwise continued to add extra red tape (contrary to what it claims). For once, therefore, Vince Cable deserves to be congratulated. I can hardly believe I have just written this – but I mean it.
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