The UK’s Office for National Statistics is reinventing how it publishes the most important numbers about the British economy. From next week, the ONS will start publishing a monthly GDP figure in addition to the usual quarterly series.
The switch to monthly GDP statistics will mean “higher quality and quicker estimates” of the UK’s changing economy, said James Scruton, head of GDP data at the ONS. The practice will make the UK unique in this area. The monthly figure will be published about six weeks after the month in question.
With less than a year until the UK formally exits the European Union, and potentially upends all its trading and business agreements in the process, more timely and frequent economic updates could help policymakers react more nimbly to trends. The Financial Times predicts that when the first monthly data is published on July 10, it will show close to zero growth for February, March, and April, before bouncing up in May.
What was wrong?
In short, the current method wasn’t accurate enough.
For each quarter, the ONS publishes three estimates of GDP. This is common practice around the world, but in comparison with other countries UK’s GDP data undergoes bigger revisions over time.
Currently, the first estimate is published just 25 days after the end of the quarter—faster than any other G7 country. It contains only data on what the economy produced, with no data on what was spent or earned, and is based on less than half of the data that will eventually become available. Not until 85 days after the end of the quarter is a GDP estimate published with 90% of the available data.
The ONS argues that these revisions are small. The average change between the first and second estimate is 0.03 percentage points and the revision between the second and last is 0.05 percentage points, it said. Even if this sounds small, the changes are persistent. Andrew Brigden, chief economist of Fathom Consulting, told the FT that between 2003 and 2013, there are only two quarters that now show the same growth figure as when they were first published.
What’s changing?
The ONS is trying to do two things: publish GDP data faster and more accurately. So, instead of the current system of quarterly figures, the ONS will publish a monthly growth rate and a three-month rolling growth rate, to offer a less volatile indicator.
To make this happen, data on the output for service industries will be released two weeks earlier than currently, making them available at the same time as data on industrial production, construction, and trade. “Taken together, these releases provide enough information to produce a monthly estimate of GDP, as data on almost the entire economy will now be available,” the ONS said.
Tackling these dual priorities of speed and quality has been a struggle (pdf) for the ONS. The monthly data deals with the problem of speed, but will only include high-level figures. For more detail and accuracy, economists will still have to wait for the quarterly data.
Under the new process, there will be just two estimates for quarterly GDP, instead of three. The first will be published 40 days after the end of the quarter, and take into account all three ways of calculating GDP—output, expenditure, and income—rather than just output. This is earlier than all other G7 countries, apart from the US. The UK’s final estimate will still be released 85 days from the end of the quarter.
What’s missing?
The ONS has been implementing a lot of changes to the way it publishes statistics to try and make them more interesting and accessible to the general public. The changes mean that quarterly GDP is based on more information than before, so the ONS should avoid big revisions and provide a clearer picture of economic trends, said Diane Coyle, a professor at the University of Cambridge and author of GDP: A Brief but Affectionate History.
But the ONS doesn’t address the bigger, existential questions about GDP as a concept. It’s undeniable that GDP is currently the best figure for measuring how an economy is performing. It has been adopted all over the world, making for clear benchmarks and international comparisons. The problem is that this one number has become the dominant metric a nation measures its progress by, encouraging policymakers to boost GDP at almost any cost. For years, economists have proposed various alternatives to GDP that could measure the well-being of a country such as a human development index or an inclusive development index. The World Bank is advocating measuring the wealth of countries rather than their income.
More recently, GDP has been subject to an even more fundamental question: is it obsolete? The ONS’s changes don’t address “some of the methodological questions people have been raising about whether or not the GDP statistics are capturing digital disruption and price changes fully,” Coyle said. The growth of the digital economy, and services that consumers don’t pay for directly but value highly, such as Wikipedia or Facebook, are really hard to capture in GDP. Economists from MIT and the University of Groningen have recently done experiments to show that the US economy would be tens of billions of dollars larger (pdf) if GDP was better at measuring the value of Wikipedia.
The scale of the problems has led economists at Barclays to argue that GDP may no longer be the best method for measuring an economy’s success. But rather than embrace alternatives, the ONS has decided to double-down the current method of calculating GDP: more, faster, and—hopefully—better.