UK to adopt EU measure for growth

Britain is to take a further step towards harmonising its economic policies with Europe with the introduction of a new methodology to calculate the rate of economic growth.

Government statisticians expect the move to shave 20 basis points off the GDP growth rate for 2001 when the new methodology is introduced in September – less than economists had feared.

The introduction of annual "chain linking" by the Office for National Statistics was prompted by the plunging price of hi-tech goods. Chain linking is a more accurate measure of growth as it reweights the components of the economy each year rather than the current practice of every five years.

Paul Ashworth, an economist at Capital Economics, said: "The problem with the old method is it overstates parts of the economy that grew very fast in volume terms [such as personal computers] but had falling prices."

The most recent base year for the growth figures is 1995 and the ONS is switching to the new-style figures this September instead of updating the base to 2000. The change will bring Britain into line with other European Union countries such as Denmark, France, Sweden, the Netherlands and Portugal.

The move to annual chain linking follows the Chancellor's announcement in last week's Budget that the Treasury is considering switching to the common European measure of inflation – the harmonised index of consumer prices. Targeting HICP, rather than the current retail prices index, could open the way for euro entry, economists said.