Hamish McRae: Behind the implausible ONS figures we still have problems

Economic Life: Given the shower of doom being dumped on the public, things have held up well

The UK is almost certainly not back in recession – the official figures are quite implausible – but growth is certainly worryingly slow and the signs that it might pick up later this year are mixed at best. First, why the figures are likely to be wrong; second, why growth is nevertheless disappointing; and third, what is likely to happen in the months ahead.

Click HERE to view graphic

As far as the numbers are concerned there are two points to be made. One is that the Office for National Statistics has seriously underestimated growth in the past.

For example, in the third quarter of 2009 GDP was initially estimated to be minus 0.4 per cent, giving rise to headlines that the US and much of continental Europe had emerged from recession whereas the UK had not. Actually, we now know, the economy grew by 0.2 per cent, but it took two years for the true figures to emerge. So poor Gordon Brown had to defend his government in the light of bad figures, only to discover when he was out of office that they were quite good ones after all. He has a right to feel sore about that.

So the ONS got the timing of the emergence from recession wrong in 2009. It also got growth wrong in 2010. As the Office for Budget Responsibility pointed out last month, its initial estimate was 1.4 per cent. It then made a series of upward adjustments, with the most recent number being 2.1 per cent. It may be further revised up in the future.

The second point is that this latest published GDP figure does not square with other data. Thus the CBI notes that these figures are "surprising" and adds: "In particular, the weakness of the services sector data does not tally closely with a range of survey indicators suggesting that the sector has been picking up through the first quarter." Some CBI survey data is shown in the first graph. As you can see, there was a particularly marked upturn in business and financial services, a sector that the ONS thinks actually declined in the first quarter.

The Ernst & Young ITEM club goes further. Its chief economic adviser, Andrew Goodwin, writes: "Our reaction to these figures is one of disbelief. The divergence between the stronger survey data and dire official output estimates is virtually unprecedented and must raise significant question marks over the quality of the [ONS] data."

The particular chunk of the data that seems out of kilter with the evidence is the services output, shown as up only 0.1 per cent on the quarter. Goodwin notes: "The monthly data suggests a serious loss of momentum in February and March, yet the surveys are reporting rapid growth and retail sales were up almost 2 per cent in March alone."

So now to the "why growth is nevertheless disappointing" point. You would expect, after a very sharp fall in output, for there to be more of a bounce. When an economy goes into sudden recession people put decisions off. But there comes a stage when they can no longer do so: companies have to refurbish or replace plant and people have to buy new items. We got that bounce, but it has not been sustained. You can see how the different bits of the economy have moved in the second graph, with services clambering back slowly but manufacturing and construction still struggling.

Even allowing for the under-reporting of growth noted above, this is a disappointing recovery and those of us who expected a sharper rise have to admit that. I had expected output to be back to its previous peak by the end of this year. That is now out of the question.

What has gone wrong? We are too close to the problem to give a good answer, but we can identify several elements.

One is that the scale of the debt burden – public and private – was so huge that it would be naïve to expect much growth until debts are perceived to be under control. Individuals have made a start on paying back their debts – that ugly word "deleveraging" – but the Government has not begun: it is merely adding to the national debt, now past £1 trillion, more slowly.

Another is that external conditions – particularly in Europe – have been adverse.

A third is that we have been bad at controlling inflation, worse than the US or Europe, and in some measure that must be the responsibility of the Bank of England. I don't think we know yet why the Bank's performance has been so bad, although the judgment of some members of the Monetary Policy Committee has clearly been poor. What is beyond dispute is that its failure has been very damaging.

So what happens next? The good news is that most of the survey data is reasonably positive and some of the actual numbers – retail sales, employment, for example – are not bad. Total employment is creeping up again and although it is down on last summer, it is higher than it was a year ago. The house builders are reasonable cheerful; private car sales were up in March. Given the relentless shower of gloom being dumped on to the British public, things have held up pretty well. The new Nationwide consumer confidence index is at a nine-month high; that is not consistent with recession.

The bad news is that this modest optimism is fragile. The company sector, taken as a whole, has cash, but investment levels remain low. The companies that lack the cash find it hard to raise money from the banks, although here it is almost impossible to distinguish between lack of demand for funds and lack of supply. And then there is Europe.

My best guess remains that the UK economy will see modest growth this year. Were inflation to fall faster than currently expected, second half growth could correspondingly surprise on the upside. But things remain finely balanced and the rapid 3 per cent-plus growth that is needed to cut the deficit remains uncomfortably far off.

Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
Voices
Hunted: A stag lies dead on Jura, where David Cameron holidays and has himself stalked deer
voicesThe Scotland I know is becoming a playground for the rich
News
people
PROMOTED VIDEO
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker