Heat waves and drift mean that economic weather fluctuates wildly too | Business News

Sky’s Paul Kelso writes that the fragile nature of the economy makes it difficult for the Bank of England to confidently navigate a policy path that would curb inflation while avoiding a recession.

by Paul Kelso, business reporter @pkelso

Wednesday 13 September 2023 at 09:25 UK time

Economic forecasting, like weather forecasting, is an inexact science.

You take the best data available, compare it to historical and recent trends, maybe chew your pencil, and then make your best informed prediction.

However, in recent months, charting the UK’s economic course has been as difficult as guessing the British summer.

As heat waves have been followed by floods, the economic weather has also fluctuated greatly – with the two sometimes linked.

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Wednesday’s data made economists’ heads spin again like Wimbledon fans watching play between rain breaks.

the A 0.5% decrease in GDP during July This came after a 0.5% increase in June, which in turn followed a slight contraction in May, preceded by a slight rise in April and another decline in March.

Volatility has been a feature of the economy for more than a year.

The UK has not seen three consecutive months without a contraction in GDP since April last year. The stop-and-start pattern was sufficient to avoid a recession, as contractions were interspersed with small increases in output.

You get the picture. What it means is harder to say.

If there is a trend, it is uncertainty, and economic performance is so fragile that small interventions can turn growth into contraction.

Many monthly falls can be linked to royal events. The platinum jubilee, the late Queen’s death in 2022, and the coronation in May saw GDP fall as public holidays were called.

The Office for National Statistics (ONS) – which we’ll talk more about in a moment – ​​attributes some of the recent contraction to the wettest July since 2009, dampening the performance of retail and construction trade, in contrast to the positive impact of the warmest June on record.

These relatively small fluctuations do not break the long-term pattern of the UK economy stuck in what the Chancellor recently called a “low growth trap”, but they do make the Bank of England’s task of deciding what to do next more difficult.

He has raised interest rates in an attempt to tackle high inflation, but is clearly thinking of avoiding pushing the UK into recession. To that end, she would like the economic weather to be clearer, with evidence of a gradual but not catastrophic slowdown.

What are members of its policy council doing about the latest series of statements, which emerged earlier this week Unemployment rates rise and wages outpace inflationwhose latest estimate will come next Wednesday, will become clearer when the interest rate decision is made the next day.

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As they think, they may wonder, in the back of their minds, whether they can really trust the history they are looking at.

The Office for National Statistics is perhaps the premier government statistical body in the world that covers an astonishing range of sectors and subjects with impressive effort.

It’s been a bad month though, announcing a Major correction to historical GDP Two weeks ago, that was in itself a revision of a previous estimate, which could have changed the political narrative if it had been known at the time.

These are the first GDP data since this correction, and the full impact on national finances will not be published until later this month.

This is the problem of economic forecasting.

Even looking back it is an appreciation. At least with the weather, there’s no arguing when your shoes are wet.

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