Making an attempt to make sense of the UK’s sudden financial correction

Obtain free Coronavirus updates

Nationwide statistics are generally like Hieronymus Bosch work: the longer you stare, the more uncomfortable you feel. Or possibly they’re extra like promoting board images: clear from a distance, pixelated up shut.

Or possibly, generally, they’re simply flawed.

How will we categorise Friday’s significant Blue Book 2023 data revision from the Workplace for Nationwide Statistics, which mainly destroyed your entire narrative of post-lockdown UK progress? From the mainFT report:

Official statistics on Friday added virtually 2 per cent to the scale of the UK financial system, in a shock transfer that confirmed the nation recovered a lot quicker from the pandemic than beforehand reported . ..

The modifications reveal that, by the tip of 2021, the nation’s financial system was 0.6 per cent bigger than pre-pandemic ranges — as a substitute of 1.2 per cent smaller, as beforehand estimated.

Right here’s the injury (or, we suppose, undamage):

Considerably, this revision moved the UK from being the worst-performing G7 financial system because the pandemic kicked off to being middle-of-the-pack.

MainFT’s Chris Giles made an excellent chart exhibiting this, which we’ve remixed barely (assume Luniz I Got 5 On It vs the Luniz ft. Bay Space All Stars I Got Five On It):

Naturally, this financial correction of the fascinating type has been received with serenity and grace.

Alphaville’s intuition is to get into the weeds, somewhat than the trenches, but when your response to this improved knowledge was/is:

— “oh no the UK financial system has been doing higher than I believed, possibly Brexit’s fame goes to enhance and other people will dislike the Tories much less”, or;
— “ha ha ha sure take THAT silly mainFT, Remoaners, my estranged father, Alistair Campbell, and everybody else who ever criticised me”

. . . we’d encourage you to briefly go exterior and contact grass, after which to consider the next:

— ought to newspapers not report the headline findings of the impartial nationwide statistics company?
— ought to the nationwide statistics company not attempt to consistently get higher at being the nationwide statistics company?
— is nice information not excellent news when it goes towards your priors?
— are GDP figures (particularly ones which might be this risky) in any respect related to actual life?

There’s clearly an essential level to be made about how the media reports on national statistics (and, maybe extra importantly, how these nationwide statistics are used to form financial decision-making). However that must be examined towards the superbly attainable counterfactual situation through which the numbers had been proved to have already been broadly proper.

Nonetheless — the ONS’s communications, in Alphaville’s view, may very well be improved. This doesn’t appear to be, we should always add, a pure screw-up, like the one we had back in January.

The ONS has given a number of explanations for the revision:

— it has struggled with measuring intermediate consumption (ie the prices dealing with companies relative to their turnover) amid fast modifications in inflation
— it has struggled to measure firm inventories because the pandemic began
— it made some tweaks to its course of and methodology

On the previous, it says the enter knowledge has improved via use of the Annual Purchases Survey and Annual Enterprise Survey (extra detailed, however slower, than different surveys):

These present that in 2021 many companies within the manufacturing sector really incurred much more prices than we initially assumed. The image within the companies sector is extra advanced, although, with these new knowledge exhibiting the worth of wholesale and retail companies was decrease than beforehand estimated, whereas the quantity of well being companies offered was increased than beforehand thought.

This feels affordable: higher knowledge can take a very long time to emerge.

However right here’s the Newport gang’s thin explanation for the stock measurement errors:

In 2020, common quantity GDP is now estimated to have fallen by 10.4%, revised up by 0.6 proportion factors (Determine 3). This upward revision displays each up to date knowledge and strategies modifications. Measurement of inventories is difficult over this time interval; the modifications within the inventories element is now estimated to have elevated by £2.5bn in 2020 (beforehand this was a £11.4bn fall).

This tells us nothing, besides that the pandemic was a tricky time to do sure issues. A separate blog post by Craig McLaren, the ONS’s head of nationwide accounts, is hardly extra informative:

Individually, we’ve additionally up to date our estimates for the quantity of inventory owned by UK firms, often called ‘inventories’ in 2020. This confirmed that the full shares held by UK manufacturing and mining firms fell lower than we first thought, decreasing the size of the autumn in whole GDP in 2020.

Producing estimates of GDP in unprecedented instances, when a lot of those knowledge we have to produce full nationwide accounts are usually not out there for a few years after the occasion is clearly a problem. We’re among the many first of our worldwide colleagues to replace our preliminary estimates with extra detailed knowledge.

We predict they need to be clearer about this type of error. We assume it isn’t a Eurostat-esque, “Germany can’t use a computer properly so we just made up a number for them”-type subject, however . . . what then? Why not simply say?

Both method, we are able to’t watch for Blue Guide 2024, which could change the narrative but once more. Nationwide statistics, such enjoyable.