So how sick was the UK?

 
money

You may recall that the government, the BBC (that's me, that is) and all the media made a big fuss at the end of July about official statistics that showed Britain's ghastly economic depression - the period during which output or GDP was below its previous peak - had just ended.

I warned at the time that this was something of a fiction. And we've had confirmation this morning that in fact the output of the country was back to its pre-crash level at least nine months earlier.

Well I say "in fact". But this assessment that we were not as mullered by the financial crisis as we thought is simply based on a new methodology - imported from the EU - for calculating GDP.

And if you have had the dubious pleasure of having to take this stuff seriously for as long as I have, it is reasonable to fear that in a few years' time we will find that the current way of measuring these things will be replaced by yet another set of rules - which may show that we were either richer or poorer than we thought we were.

And before I move on, I should point out that the current view that the depression ended in the third quarter of 2013 - and not the second quarter of 2014 - stems from revised figures for growth up to the end of 2012 and unrevised figures for 2013 and 2014.

It is completely plausible that those 2013 and 2014 figures will also be shown to be an understatement (survey data suggests growth has been stronger - as the Bank of England has been saying).

So even this latest view of how bad it's actually been may change before too long.

Does it matter that the Office for National Statistics (ONS) now calculates that output declined "only" 6% at its peak in the great debacle of six years ago, rather than its previous estimate that the economy had shrunk more than 7%?

Still pretty sick

Should we be anything but pleased that the British economy is probably 2.7% bigger than it was in the first quarter of 2008, as opposed to the estimate of just a few weeks ago that it is just a fraction bigger?

Isn't it fantastically good news that it now appears that the British economy has been performing a bit better than Germany's and way better than France's for some time, and only a bit worse than America's or Canada's?

Of course it is great to learn that we were not as sick as we thought we were - although, for the avoidance of doubt, we were still pretty sick (this was still by a significant margin the most painful and longest lasting slump since the 1930s).

But the big thing is that the official view of the health of our economy has an impact on the behaviour of businesses and consumers.

Thus, if the oracle that is the ONS had made clear a year ago that the UK had been performing for a while significantly better than many competitor economies that might have encouraged British firms to invest more and overseas investors to put more of their cash in the UK.

And that would have made all of us richer.

Or to put it another way, the perception that we are doing well helps us to perform even better, to become richer.

And of course the corollary also holds: if we are perceived to be in dire straights, no one wants to spend or invest, and we become poorer.

So the official description of our economic performance can have a significant impact on the subsequent performance of the economy.

For the avoidance of doubt, I am not claiming that we can magic ourselves richer simply by pretending that we are.

But Keynes had a point when he said that animal spirits - how we feel about ourselves - has an impact on economic behaviour that determines our prosperity.

To be clear, I am not trying to put the boot into the ONS. It has a difficult job to do, and in making its revisions is simply trying to provide more reliable information.

But you may understand that I periodically feel a bit grumpy and bewildered in having to tell you one day that the UK has gathered - by analogy - four bronzes in the economic Olympics, and then a few weeks later learn that the medal haul was in fact significantly different and better.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +1

    Comment number 29.

    Are you saying that austerity was some kind of joke?

  • rate this
    -1

    Comment number 28.

    When you factor in the Gentrification, and the Anti-Captalist Sentiment, we are still as indoctrinated as we have ever been. Feed, Housing, Entertainment. We're little more than Cattle really.

  • rate this
    +5

    Comment number 27.

    Why don't we measure the health of our economy as the difference between the salaries of the richest and the poorest?

    Then we can claim it's getting better and better all the time.

  • rate this
    +4

    Comment number 26.

    Still an economy heavily reliant on the service sector and housing bubble. Plus most of our industry is foreign owned which is very unhealthy.

  • rate this
    +83

    Comment number 25.

    The reality is that most people are far worse off than they were seven years ago - paid less for working more hours with rising prices and taxes.

    Only those at the very top are seeing any benefit from any improvement in the economy. The vast majority just have to keep paying for the mistakes of those at the top.

  • rate this
    +1

    Comment number 24.

    lies and damn statistics comes to mind; i may have been gullible in a previous life, but am pretty sure that the use of stats to prove any point you like, is so obvious, but you do not want to believe badly of people. politics, politicians, lies, it's all part of the show; who on earth believes what the BBC puts out; once a respectable organisation, now voice of government

  • rate this
    +2

    Comment number 23.

    British economy equals House of Cards. 30's depression will look like holiday camp after this.

  • rate this
    +4

    Comment number 22.

    "For the avoidance of doubt, I am not claiming that we can magic ourselves richer simply by pretending that we are."

    MPs have got a magic, massive pay rise coming soon so they won't have to pretend they are richer.

  • rate this
    +35

    Comment number 21.

    Was the UK economy as sick as we thought?

    No. Most of us were surviving nicely - heck, I was even saving.

    Then the banks ran out of money, . The government bailed them out, and have since been pleading poverty ever since.

    The combination of tax increases and Quantitive Easing led to dwindling incomes due to inflation going WAY above the published figures.

    What a complete farce.

  • rate this
    +45

    Comment number 20.

    When the government has to include income from Illegal drugs and Prostitution in a desperate attempt to make the figures look better, then yes the UK economic situation is very sick.

  • rate this
    0

    Comment number 19.

    How sick is the UK? We are certainly morally sick,we froth about a couple of journalists being killed while a country that forcibly kills millions of babies every year is happily allowed to invest in the UK.

    http://www.bbc.co.uk/news/world-asia-china-18600107

    BBC:“there has been more inward investment from Chinese companies in the last 18 months, than in the last 30 years combined.”

  • rate this
    +1

    Comment number 18.

    So if the EU had adopted the methodology which the ONS had been using it follows the their economies would have looked very much worse than the figures they produced.

    Isn't it obvious that, as I have said many times before, that at the end of this debacle the real world is knocking at the doors of all these economies insisting they operate in a real way.

    When will they learn?

  • rate this
    +1

    Comment number 17.

    I dont know why my comment number 4 was voted down.
    Prositition and illegal drugs are now adding £10bn to UK GDP due to new EU rules.

    http://www.bbc.co.uk/news/business-29042385

    An unverifyable figure that can be manipulated at will to massage the figures. Good news headlines do not replace lost income due to falling wages and higher inflation and it will not spur a recovery.

  • rate this
    +4

    Comment number 16.

    For years I have been banging on that statistics which ignore the growth in the population are worthless, but you persist in using them. When your family expands, the size of each slice of a given cake gets smaller.

    On the question of the health of the economy, it is only as healthy as the availability of the next loan. All serial borrowers can have the rug pulled out at any time.

  • rate this
    +1

    Comment number 15.

    @9

    Did you study at the school of hyperbole or just happen to be a natural at it?

  • rate this
    +4

    Comment number 14.

    Seems better to me. Most people I speak to are enjoying more job opportunities.

  • Comment number 13.

    All this user's posts have been removed.Why?

  • rate this
    -1

    Comment number 12.

    with a cheap labour force of 450m how are wages ever going to go up? massage the figures all you like...any employer with any sense will just get a immigrant in and pay him peanuts...

  • rate this
    +3

    Comment number 11.

    Ah yes, we "recovered" about 9 months earlier. That'd be about the time the royal mail pension scheme got nationalised, giving the government a temporary £30 billion boost and also about the time they decided to include assumed earnings from prostitution and drugs.

    So everything is OK?

  • rate this
    +1

    Comment number 10.

    For the change in stats to reduce the time taken to get back to pre-crash levels sooner than otherwise, that implies that post-crash Brits were consuming more drugs and tarts than they were pre-crash.

    Would an economist view this as a leading indicator of growth to come, or merely an indication of how badly people felt in need of something to cheer themselves up?

 

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