Andrew Lilico is the Chief Economist of Policy Exchange.
Last Friday, the Office for National Statistics’ press release stated: “Services growth in December pushes up GDP estimate”. This led to considerable excitement, both in political and financial market terms. Market watchers expected the pound to strengthen. There was speculation that Gordon Brown might call a General Election.
But the pound actually tanked, to some initial confusion. This should not, however, have been a surprise, since GDP was actually revised down, not up. The ONS press release headline was simply wrong. The initial estimate for GDP in the final three months of 2009 was £315,845m as you can see here (cell G289). This was revised last Friday to £315,712m as you can see here (Table C2).
The ONS had managed to confuse the level of GDP with the growth rate of GDP. What happened was that (as has happened regularly during this recession) the GDP level in the previous quarter (Q3) was revised down quite a lot (things were quite a bit worse than previously thought). So the change (the increase) between the third and fourth quarters was re-estimated up to 0.3% from 0.1%. That is obviously a bad news story – the economy was worse than we had thought. But the ONS headline managed to turn that bad news story into a (wrong) good news story. Only the Telegraph ran the true story.
Given how politically sensitive GDP data is, and how jittery financial markets are at present, this is a terrible blunder for the ONS to have made.