Cazenove’s chief investment officer has questioned the validity of the Office for National Statistics’ first estimate of UK GDP, after data going back 20 years shows the the first quarterly estimate of year-on-year growth is revised up by an average of 0.7 per cent.
Based on 82 first quarterly estimates going back to 1992, Richard Jeffrey says Cazenove data shows on 34 occasions the revision has been 1 per cent or higher, which he says is enough to “severely question” the validity of the first published estimates.
Only 16 out of 82 estimates were revised downwards.
Jeffrey says: “If you are giving out the wrong message about what is going on in the economy, wrong investment decisions can easily be made off the back of it.”
Prior to its first estimate for third quarter GDP growth of 1 per cent this year, ONS data showed that UK output fell for three consecutive quarters. Jeffrey says this lead to negative sentiment owing to the recession headlines it prompted.
Jeffrey points to the 600,000 jobs created in the private sector during the twelve months to June.
He says: “I simply do not believe the ONS’s numbers and from time to time it has made horrid mistakes. These mistakes have an economic impact. I prefer to trust the plot for the economy suggested by the labour market numbers.”
Jeffrey says to improve its forecasts, the ONS should take into account the purchasing managers indexes and improve the quality of its surveys. He adds: “It needs to put more effort into identifying what is going on in the fringes of the economy.”