Economists have warned policymakers not to be fooled into pumping too much money into the economy on the back of Friday’s unexpectedly weak gross domestic product figures.
The 0.4% drop in GDP in the third quarter, which went against City and Bank of England expectations of a 0.2% rise, prompted speculation about a further boost to the money supply by the Bank through quantitative easing.
However, analysts said that the economy was stronger than the official figures suggested. Chris Williamson, chief economist at Markit, which produces the monthly purchasing managers’ indexes, said he was bemused by data suggesting Britain was still in recession while other European countries were pulling out, and that the result could be serious policy errors.
“The whole reason central banks began using surveys like these, beginning with the Federal Reserve in the 1930s, was to get a true picture of what is happening,” he said.
Economists at Goldman Sachs published a detailed research note saying that the GDP figures were not only inconsistent with the purchasing managers’ surveys, which suggested growth of up to 0.7% in the quarter, but that they were hard to square with other official data.
Kevin Daly, an economist at Goldman Sachs, said: “Does this data tell us anything about what is really going on in the economy? Probably not.”
Part of the criticism of the figures was because economists got their predictions wrong, but it also reflected deeper concern about the data’s reliability. Treasury economists, who had expected a flat third quarter, were said to be astonished.
In the past the Bank has expressed unhappiness about the reliability of data from the Office for National Statistics and attempted to “backcast” the figures, based on the assumption that they are likely to be revised. “This is just a first estimate. These numbers will be revised,” one official said of the latest announcement.
However, they could tip the balance on the Bank’s monetary policy committee (MPC) in favour of more quantitative easing when it meets on November 5. One MPC member, Adam Posen, hinted in The Sunday Times last week that the programme needed to go beyond the £175 billion so far agreed.
Paul Tucker, a deputy governor of the Bank, said last Thursday that it would not be clear until next summer whether the official measures had helped the economy to grow.
Figures out this week are expected to show that America pulled out of recession in the third quarter, with annualised growth of 3% or more. Also this week, the Bank is expected to report another rise in monthly mortgage approvals. (David Smith, The Sunday Times) http://business.timesonline.co.uk/tol/business/economics/article6888835.ece
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