The Office for National Statistics (ONS) needs to find a cure for its revisionitis, and fast – the current system is no longer tolerable. For a start, the ONS needs to wait much longer – at least another month, if not two – before it releases GDP figures. The situation is so bad that it deserves proper parliamentary scrutiny: Andrew Tyrie, the chairman of the Treasury select committee, should launch an investigation into these latest revisions and summon statistical chiefs.
Crucially, it is not just the overall figures that keep changing, but also the composition of output. The ONS thought that construction collapsed 3.9 per cent; now it says it is down three per cent. Business investment has improved. But figures will go on being revised, in some cases even for a decade or longer, making the work of policy-makers very difficult indeed.
If the ONS’s latest figures are right, they reveal a worrying development. The current account deficit – the gap between exports of goods and services, and the receipt of cash (such as dividends and interest) on the one hand, and imports and payments of income on the other – has widened again. It is now – or so we are told – £20.8bn, the highest on record, equivalent to 5.4 per cent of GDP. Within that, the deficit on the income account was the largest ever, as foreigners made more from their investments in the UK than UK based individuals and companies made from their investments abroad. Just to add to the cheer, the trade deficit in goods was also the highest ever. The first quarter’s current account deficit was also revised higher.
So much for the rebalancing of the British economy, the supposed march of the makers and all the other nonsense the government keeps saying it is achieving. Only services exports did well, thanks to the City – but no thanks to the banker-bashers and those seeking to weaken every other major City sector, including insurance and accountancy.
In the past, massive current account deficits have tended to lead to a collapse in sterling, currently at a four-year high on a trade-weighted measure. Jim Leaviss of M&G Investments points out that periods when the current account deficit exceeded around 3 per cent of GDP are usually followed by a significant weakening of the pound. In the mid 1970s, the pound fell by nearly 30 per cent against the Deutsche Mark and US dollar, and there were also big falls in the early 1990s and at the start of the recent crisis. The pound looks fairly valued against the euro and cheap against the Australian dollar on a purchasing power parity measure. But sterling is around 15 per cent too high against the greenback, and if at some point the markets realise that the national debt is being financed via quantitative easing, that the budget deficit is actually going up and that Brits are consuming too much and producing too little, a sharp correction of sterling could happen much more quickly than anybody expects.
It is foolish to try and predict currencies precisely. But one thing is clear: yesterday’s figures contained as much bad news as good.