British statisticians juggle conflicting data on recovery from the pandemic

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The UK statistics agency will face a communication conundrum this week when it releases two sets of official data for the size of the economy that paint contradictory pictures of the recovery from the coronavirus.

The problem should arise on Thursday, when the Office for National Statistics releases quarterly and monthly gross domestic product data. The quarterly data will show that the UK economy is still some distance from its pre-pandemic size, while the monthly data will likely show that the economy is close to reaching that benchmark.

The discrepancy arises because the ONS uses different techniques to measure gross domestic product on a monthly basis versus a quarterly basis and these estimates are currently very far apart, even though they are trying to measure the same thing.

Economists say the discrepancy will create difficult problems for the statistical agency, the Office for Budget Responsibility and the Bank of England.

Liz Martens, UK economist at HSBC, said: “The position of the economy relative to its pre-pandemic level is critical: it is an accessible and understandable metric that tells us how much the economy has fallen, how much it has recovered and how this compares to other countries.

“Statistics are essentially giving us two fairly different sets of answers to these questions. This makes a difference for politicians: it affects OBR’s projections for indebtedness and the BoE’s decision-making on whether or not to raise rates. “

The ONS is aware of the problem and when contacted by the Financial Times, officials indicated that it will judge the economy has recovered from Covid-19 when monthly numbers show that the UK economy has regained production lost during the pandemic.

Line chart of GDP index: 2019 = 100 showing monthly ONS GDP data show much stronger recovery than quarterly data

This moment could happen as soon as Thursday if the September data is strong, but it is more likely in a month’s time.

Both of these dates are far ahead of the BoE’s prediction that economic output will not resume lost output until the first quarter of next year because, by convention, the central bank uses ONS quarterly data.

Quarterly data between April and June of this year showed that GDP was 3.3 percent lower than the level of the fourth quarter of 2019. The same comparison with the monthly data shows only a 2.3 percent gap. .

The latest monthly GDP figures show that in August this year it was only 0.8 percent lower than in February 2020, before the pandemic.

Economists expect another 0.4 percent monthly growth in September, leaving the most recent monthly data just 0.4 percent below the pre-pandemic level and on track to close the gap in October or November.

If the economists are right, the monthly data will show that the average level of GDP in the third quarter will be 0.9 percent lower than the fourth quarter of 2019, while the official quarterly data will likely show a gap of 1.8 percent. according to the BoE with gap closed only at the beginning of 2022.

The difference arises because the monthly data is based on an attempt to sum the output of each sector and this analysis is giving stronger indications than other methods of calculating GDP, including measuring expenditure in the economy or income.

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