The UK’s statistical agency will face a communications conundrum this week when it publishes two sets of official figures for the size of the economy that paint contradictory pictures of the recovery from coronavirus.
The problem is set to arise on Thursday when the Office for National Statistics releases both its quarterly and monthly figures for gross domestic product. The quarterly figures will show the UK economy still some distance short of its pre-pandemic size, while the monthly figures are likely to show that the economy is within a hair’s breadth of reaching that benchmark.
The discrepancy arises because the ONS uses different techniques to measure gross domestic product on a monthly basis compared with a quarterly basis and these estimates are currently far apart, even though they are attempting 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: “Where the economy stands relative to its pre-pandemic level is key — it is an accessible and understandable metric that tells us how far the economy has fallen, how far it has recovered and how that compares with other countries.
“The statistics are essentially giving us two quite different sets of answers to those questions. That makes a difference for policymakers: it affects the OBR’s projections for borrowing, 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 that the economy has recovered from Covid-19 when the monthly numbers show the UK economy has regained the lost output during the pandemic.
This moment could happen as soon as on Thursday if the September data is strong, but is more likely in a month’s time.
Both of these dates are far ahead of the BoE’s forecast that economic output will not regain lost output until the first quarter of next year because, by convention, the central bank uses the ONS quarterly figures.
The quarterly data between April and June this year showed that GDP was 3.3 per cent lower than its level in the fourth quarter of 2019. The same comparison using the monthly data shows only a 2.3 per cent gap.
The latest data for monthly GDP shows it to be only 0.8 per cent lower in August this year than in February 2020, before the pandemic.
Economists are expecting another 0.4 per cent monthly growth in September, leaving the most recent monthly data only 0.4 per cent below pre-pandemic level and on track to close the gap in October or November.
If economists are right, the monthly data will show the average level of GDP in the third quarter to be 0.9 per cent below the fourth quarter of 2019, while the official quarterly data is likely to show a gap of 1.8 per cent, according to the BoE with the gap closed only at the start of 2022.
The difference arises because the monthly figures are based on an attempt to sum the output of every industry and this analysis is giving stronger indications than other methods of calculating GDP including measuring spending in the economy or incomes.