I’ve gone almost literally blue in the face warning my Remainer friends (yes I still have some) that UK GDP statistics were more subject to upward revision than those from other countries so they should be careful about drawing pro-remain conclusions based on early stats. Sadly it didn’t stop them.
So one might think (especially as I had even warned in which sectors the revisions were most likely to take place – see below) that I would be basking in plaudits when the GDP data finally got revised in the direction I suggested.
Unfortunately not. The main reaction seems to be along the lines of ‘shows it’s not worth listening to any economist’!
Which is a pity. Because there are quite a few economists who are worth listening to on most issues (eg our competitors Roger Bootle and Julian Jessop – I will leave it to others to decide whether to include me and my Cebr colleagues!) while there are even more who are worth listening to on some issues but not all. A blanket refusal to pay attention to economists leaves the field clear for charlatans and for politically motivated distortions.
What do the revised statistics really mean?
First, the scale of the revision is large at 1.9% over two years.
Second, the sectors in which the revision has mainly taken place are distribution (where the stats haven’t really caught up with the change in structure to online shopping) and the NHS (as predicted by Cebr).
Retail trade volume GVA growth in 2021 has been revised up from 1.5% to 10.8% and wholesale trade from 3.2% to 32.4%. Health service growth in the same year has been revised up from 34.6% to 57.1%.
My guess is that both have been pushed up a bit more than really has happened, especially health where very few would think that activity has recovered to pre-Covid levels and where mortality data does not support a view of high activity at the output level. On the other hand I think that there has not been a sufficient boost to the GVA in the information services sector even now and expect further upward revisions.
Third, where does this leave the UK?
We are still not doing brilliantly. We probably bounced back from Covid a bit faster than our European competitors because we were early in getting out the vaccines but since the final date of the revision (Q4 2021) we seem to have fallen back (though the stats for this will also probably be revised up a bit).
If the latest stats are right and the adjustment to GDP is continued forward, UK real GDP per capita in 2023 Q1 is up 1.5% compared with pre-Covid in 2019. That is suggesting that the weak post-financial crisis trend in growth in GDP per capita has continued and we are doing roughly as badly as other equivalent European countries.
Having got flak from Remainer friends for telling them not to use the unrevised figures to compare the UK with the rest of the EU, I will now risk the same from my Leaver friends by warning them not to draw conclusions from comparing revised UK figures with unrevised EU data that will probably also be revised up a bit in the future.
The new data suggests that inventories have been strongly revised upwards. This may be real but my experience tells me that this is an area where, if the figures don’t quite add up, statisticians make adjustments. Certainly the idea that inventories were rising at a time of supply shortages doesn’t quite seem right.
Finally does this mean that the statisticians deserve a kicking?
Well not really.
Oddly the problems this time reflect an attempt to try to get things really right when other countries’ statisticians used rougher and readier techniques to approximate the right answer.
Obviously Cebr has a vested interest in statistics that don’t quite tell the whole story because with our knowledge of additional sources of information from business and the consumer we have a comparative advantage in being able to correct for statistical errors. But I genuinely think that the statisticians have done their best, using models that haven’t entirely helped them in unusually trying circumstances.
The underlying story is that the UK pre-Brexit was doing slightly better than equivalent countries in the EU and is now doing about equally as badly.
This factual data doesn’t really make much difference to the case for or against Brexit (the OBR’s assessment that Brexit has cost 4% of GDP now looks to be on shaky ground). My own take is that whether the UK economy does well in the future depends on whether we run our own country well including getting the right phasing on the decarbonisation of the economy, whether we can sort out the malaise in the public sector; whether we can get taxes back down to sensible levels and whether we can handle the issue of welfare dependency.
These problems will exist whether we could renegotiate our way back into the EU (unlikely) or whether we stay outside.
Douglas McWilliams is Deputy Chairman of Cebr, the economics consultancy, and Co Chairman of the Growth Commission
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