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.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
News
Elton John and David Furnish will marry on 21 December 2014
people
Sport
SPORT
News
people
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
i100
Arts and Entertainment
Christopher Biggins as Mrs Smee in Peter Pan
theatreHow do the men who play panto dames get themselves ready for the performance of a lifetime?
News
i100
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick