Changes to the way we calculate UK GDP may help us in the future, but they won’t solve the economic issues of the dayby George Magnus / July 3, 2014 / Leave a comment
Artist’s impression of an ONS economics wizard
At the end of September, once you’re back from your holidays and the kids are back at school, the Office for National Statistics (ONS) is going to perform a bit of statistical magic for us. It is going to show that the level of the UK’s Gross Domestic Product is higher than we thought it was, the recession in 2009 wasn’t as deep as we assumed, and that the last peak in the economy in the first quarter of 2008 was surpassed in the first three months of 2014. This major overhaul in the way we calculate GDP is going to be unequivocally good news in some respects, and it might even reveal that our productivity funk hasn’t been as abysmal as it is estimated to be. But don’t reach for the bunting quite yet—even the ONS can’t magic away deep-seated concerns about our economic predicament and prospects. If anything, it might just make a rise in interest rates more likely.
The ONS makes revisions to the way we perceive the economy fairly regularly, if not frequently, in the light of fuller and better information. This time it is also introducing statistical measurement techniques that conform to the European System of Accounts 2010. The updated accounting system tries to incorporate some of the substantial changes that have impacted economies. For example, it takes into account the increasing role of information and communications technology in production processes, and the growing importance of intangible assets such as intellectual property products and services. Research and development by companies, regarded as a cost until now, will be treated as investment, as will weapons systems. New estimates will be made about the contributions of insurance services, charities and illegal or ‘borderline’ economic activities, such as drugs and prostitution to the economy. Changes to the valuation and measurement of pensions will also be introduced, raising the level of household savings.
While the pattern of growth between 1998 and 2009 will look different, with some years revised up, and some down, the overall growth in the UK economy over the period will be unrevised at 2.2 per cent per year. The headlines, however, will focus on how this new reporting system and revisions change our view of what’s happened to us. They will show that GDP growth in 2007, just…