by Stephen Tall on July 26, 2012
Hamish McRae, an economist and associate editor of The Independent, has been claiming for some while now that the official figures aren’t reflecting the reality of the economy. A week ago, he made the bold statement that the UK is not in recession:
The British economy is becoming more and more interesting. This week [ie, last week now] we have had two positive surprises … the fall in inflation to 2.4 per cent, a much sharper decline than expected, with the prospect that it may be below 2 per cent by the autumn … [and] a further fall in unemployment on the International Labour Organisation measure, down to 8.1 per cent, and a rise in employment of 181,000 on the quarter. … it is this second surprise, on the labour market, that is really exciting because it is one more nail in the coffin to the idea that the economy is in recession.
Anticipating yesterday’s announcement of this past quarter’s shock 0.7% economic contraction, he added: “GDP figures are among the most nebulous [figures]. Beware next week when the second-quarter figures come out.”
Hamish McRae returns to the fray today, and he’s not recanting his view that the British economy is growing, albeit feebly. In fact he remains just as bullish that the GDP figures are failing to tell the true story:
Yet another implausible set of GDP figures underlines the point that the country needs as a high priority to examine what has been going wrong at the Office for National Statistics. To have headlines declaring that the economy had shrunk by 0.7 per cent in the three months to end-June was, in the yah-boo of politics, embarrassing for the coalition. But this should not be a party-political issue. The previous government suffered equally when the ONS got the timing of the exit from recession wrong, initially saying we were still in recession when actually we had, like most other countries, returned to growth. If it is childish for politicians to use dodgy data for political ends, it is intolerable for the country as a whole to have statistics of this quality. …
… in the three months to end-April, the private sector added a net 205,000 jobs, the second-highest rate of job creation ever. This is not, as you can see from the graph [click to enlarge], consistent with a shrinking economy. We are getting close to the peak in employment at the top of the last cycle, though officially the economy is some 4.5 per cent smaller. As Chris Wilkinson of Markit points out, if the official figures of GDP were correct the UK economy would be shrinking faster than Spain’s. Not even the most unutterably dismal economist could think that is the case.
It is perfectly possible that there might have been one quarter of negative growth over the past year and this may be it. But pull all the other data together and the figures would be consistent with an economy growing at around 1 per cent a year. That would be disappointingly slow. But I suppose it is understandable given what is happening across the Channel and given the debts households have to pay off. The latest banking figures confirm people are still doing that.
Not surprisingly, no Coalition politician is daring to make the case Hamish Mcrae is — either because they don’t believe it themselves, or perhaps because they know disputing the figures runs the high risk of being painted as a recession-denier. As The Economist’s Janan Ganesh tweeted yesterday:
Government in a bind. Many of them think the GDP numbers are way off the mark but know they’d look silly if they challenge them.
— Janan Ganesh (@JananGanesh) July 25, 2012
Is Hamish McRae right? I have no idea — as Will Rogers once remarked, “An economist’s guess is liable to be as good as anybody else’s.”