The UK economy fell at a rate of 0.7 per cent in Q2, which was much worse than the 0.2 per cent decline expected. And the Bank of England recently cut its outlook for growth.However, other key data points like retail sales are painting a much rosier picture.
This has economist Jim O’Neill questioning the data.
“I have mentioned to many clients and observers in the past that all those who doubt the reliability of official Chinese GDP data, try looking at the UK,” says O’Neill, Chairman of Goldman Sachs Asset Management.
He writes in latest Viewpoints note:
…I am not joking, and as Kevin Daly from the GS Economics team has shown frequently, the only reliability about UK GDP data is that – within a couple of years – it gets revised significantly higher.
This past week, there has been more evidence to challenge the notion that the UK is still in recession. Apart from the first upward CPI surprise for a while – inflation is still above target – Thursday’s retail sales data showed a much higher-than-expected 3.3% rise in July. This followed the day-earlier report of a much bigger drop in unemployment again. The performance of UK unemployment has confounded the pessimists for a considerable period and now there is growing evidence that more private sector jobs are being added, outweighing the downsizing of the public sector. How can this data be accurate at the same time as the officially published GDP data – unless there has been a spectacular collapse in productivity? The Bank of England, as I discussed last week, appears to have concluded that productivity has indeed fallen sharply, but I can’t share this view without much more persuasion. To do so, you would have to believe that there is something inherently unproductive about part-time work, or argue that those sectors of the economy which have been especially weak cyclically are the ones with high productivity. Is it the case that public sector, construction and our very own financial services were characterised by such high productivity? There is a topic for a budding PhD student, or no doubt, lots of essays by journalists.