‘Damned Lies’ Threaten to Overshadow U.K. GDP in Election Fight
Britain’s warring political parties will waste no time turning Tuesday’s economic numbers into a stick to beat the opposition. They won’t be so quick to remind voters that the eventual picture may tell another story.
In the last major piece of U.K. data before the May 7 election, the Office for National Statistics said growth slowed in the three months through March. The 0.3 percent expansion was the worst reading since 2012, and below economists' forecasts.
The reading is based on less than half the information the statistics office will ultimately include, and revisions months and years later may change the figure by almost half a percentage point, a Bloomberg analysis going back more than a decade shows.
That won’t stop Prime Minister David Cameron and opposition rival Ed Miliband seizing on the figures to make the case for their parties, which are still running neck-and-neck in polls nine days before the vote.
“The number is going to be used and abused,” said Simon Kirby, an economist at the National Institute of Economic and Social Research. “It’s lies, damned lies and statistics, and the ONS have no control over how people interpret it once it’s out there in the public domain.”
Since Cameron's Conservative-led government took office in 2010 the economy has grown almost 10 percent and its expansion last year was faster than any other in the Group of Seven. Miliband, whose Labour Party would likely gain power with the support of the Scottish National Party if current polling is replicated on May 7, says the recovery has failed to improve living standards for most.
The data produced a range of interpretations by political parties.
“Good news,” Chancellor of the Exchequer George Osborne said on Twitter. “Economy continues to grow but this is a critical moment & reminder you can't take recovery for granted.” “These disappointing figures show economic growth slowing down,” said Ed Balls, who speaks for the opposition Labour party on economic matters.
Liberal Democrat Danny Alexander, chief secretary to the Treasury, said “the underlying figures show that we are still making solid progress across the wider economy” though some Tory proposals are “a real threat to all the hard earned progress we've made to date.” His party is the junior partner in Cameron's coalition.
The first estimate of U.K. GDP is published less than a month after the end of the quarter, which means Britain is usually the first among the G-7. In the absence of complete data, the ONS uses its own estimates.
Second and third estimates are published in the next two months, with an average absolute difference of 0.1 percentage point between the first and third. After three years, almost all of the information that feeds into the statistic has been included, said Joe Grice, chief economist at the ONS.
That widens the average difference to 0.3 percentage point, according to Bloomberg calculations. Add in any subsequent methodological changes and the average versus the first take is 0.4 percentage points.
In other words, the reading Tuesday -- which was less than the median 0.5 percent forecast by economists -- could turn out to be a 0.1 percent contraction or 0.7 percent growth, which would make for a very different political story. Previous revisions revealed the recession of 2012 never happened, and the slump of 2008-2009 was shorter and shallower than first estimated.
“It’s a very good predictor of all the output information we’ll have. It’s similar to how you can make a good prediction on election night after seeing the first 20 percent of results,” Grice said. “Don’t take it literally. There is a margin of error, but equally don’t think it’s definitely going to be revised up or down as time goes on.”
Forecasts for the first quarter ranged from an expansion of 0.8 percent to 0.3 percent. Production and construction contracted in the period while services, the largest part of the economy, expanded just 0.5 percent, about half the pace of the previous quarter. Within that, business services and finance rose 0.1 percent, the smallest increase since 2010.
“Both Labour and the Conservatives will seek to interpret the data to their best advantage,” said Ben Page, chief executive of Ipsos Mori. “They’re in the trenches firing big guns at each other and none of it seems to be making much difference.”
The complications stemming from GDP's revisions create a new twist to the sentiment behind the expression “there are three kinds of lies: lies, damned lies, and statistics.” The phrase is older than the ONS's GDP data, and has been attributed to Winston Churchill, Mark Twain, and 19th century British Prime Minster Benjamin Disraeli.
A separate Bloomberg survey emphasizes the need for caution. None of the 15 economists polled said initial GDP estimates were an extremely reliable gauge of the health of the economy, and the majority placed it in a middle ground of being “somewhat reliable.” Eight of 10 said they wouldn’t want to get rid of the report, including Simon Wells at HSBC Bank Plc.
“It’s a tradeoff between timeliness and accuracy,” he said. “It’s up to the users to use that data appropriately.”
There are “major gaps” between how people read data and what the numbers actually show, said Hetan Shah, executive director of the Royal Statistical Society, which offers training to politicians to improve their understanding of statistics. Of the 1,000 they’ve contacted to take the course, 200 have pledged to do so. None of them are party leaders.
“The public are pretty confused by the flurry of numbers that are being thrown around,” Shah said. “Politicians are cherry-picking the numbers.”
The failure of either major party to establish a consistent lead in the polls shows that something more than a surprise GDP reading may be needed to gain an advantage, said Andrew Russell, politics professor at Manchester University.
Looming on the horizon is Greece’s struggle to make its debt payments, one of which is due the day before the U.K. vote.
“It’s got potential to be a key issue in the last days of the campaign,” he said. “This could constitute the kind of global event that might make voters aware of the precariousness of the economic recovery.”