Not good enough

Earlier this week, in Data vs. Common Sense: Fight, I wrote again about the ONS's problems producing reliable data, which policymakers need to make informed and appropriate decisions. On that occasion, I focused on trade and manufacturing output data, both of which, for the reasons I explain in the note, look completely flawed.

No more than five days later, tucked away in the FT online, there is yet another story about a new data problem at the ONS. This time, it relates to two price indices used to calculate price pressures in business supply chains. Now, this may sound esoteric, but these problems, according to the ONS, date back to 2022 and 2023 and importantly, this data is used to calculate the size of the UK economy and could lead to revisions to estimates for services, production (manufacturing is included here) and construction. Sound familiar?

Shockingly, if this wasn’t concerning enough, the ONS admits that the “issues with the figures date back as far as 2008”. The problems also affected how trade in goods and services has been adjusted for inflation, casting even more doubt on the veracity of these already volatile and frequently revised trade data series.

As I said in the note published earlier this week, I have been concerned for some time that the ONS was failing to accurately measure important parts of the economy and, in doing so, creating an unreliable guide for policymakers and financial markets. These latest and worrying admissions can only add to those concerns and should, in my view, catalyse a proper review of what is going on at the ONS sooner rather than later.

Let me give you an example of why this is important. If we focus on the manufacturing data as represented by the ONS, in other words, that output has fallen by 12.2% over the last four years against a backdrop of manufacturing employment rising by over 1% over the same period. The Bank of England presented with this data would conclude (and probably did conclude) that manufacturing productivity had fallen significantly over this period. Without going into too much detail, if they believe this, by implication, they will conclude that the output gap in manufacturing would have shrunk considerably. This will, in turn, influence their thinking about how inflation might develop in the economy in an environment of rising demand and have a consequential and potentially damaging result in the form of inappropriate interest rate decisions.