The once-in-a-generation changes to the way GDP is calculated saw it rise to 3.2% for Q2 2014, but by looking at how economic data has been revised through history, economists at Warwick Business School (WBS) believe it could actually rise to 3.6%.

The size of the UK’s economy was upgraded as the Office for National Statistics moved to a new European-wide method of measuring GDP, which includes the economic contribution made by drug dealers and prostitutes. It also changed the way it accounts for other (legal) activities, including research and development and military spending.

By looking at historical patterns in revisions to UK real GDP to provide an indication of the expected revision to the latest data, associate professor of economic modelling and forecasting Dr. Ana Galvao, together with WBS colleagues professors Anthony Garratt and James Mitchell, computed the likely range of estimates for the expected revisions to the latest GDP over the post-recession 2008 to 2014 period.

The black line on the chart shows the ONS revised figure, while the red line is WBS’ expected final value. The likely revisions to UK GDP are presented in the chart as 90% uncertainty bands. There is only a 10% chance that a GDP estimate higher or lower than these bands will be observed.
Dr Galvao said their central estimate is that year-on-year growth in Q2 would be closer to 3.6% than the 3.2% figure estimated by ONS.

“In a few years’ time, we expect to be looking back at the 2010 to 2014 recovery period through an even rosier lens,” says Galvao.

“The data released by the ONS is not the end of the story. Further revisions are to be expected as more up-todate information about the state of the economy arrives.

“Today’s estimates will inevitably be revised. We should therefore expect the economic history of the past five years to be rewritten – again and again. In the meantime, we should interpret the latest estimates with some caution and avoid reading too much into one particular estimate, view or interpretation of economic history.”

The once-in-a-generation changes to the way GDP is calculated saw it rise to 3.2% for Q2 2014, but by looking at how economic data has been revised through history, economists at Warwick Business School (WBS) believe it could actually rise to 3.6%.

The size of the UK’s economy was upgraded as the Office for National Statistics moved to a new European-wide method of measuring GDP, which includes the economic contribution made by drug dealers and prostitutes. It also changed the way it accounts for other (legal) activities, including research and development and military spending.
By looking at historical patterns in revisions to UK real GDP to provide an indication of the expected revision to the latest data, associate professor of economic modelling and forecasting Dr. Ana Galvao, together with WBS colleagues professors Anthony Garratt and James Mitchell, computed the likely range of estimates for the expected revisions to the latest GDP over the post-recession 2008 to 2014 period.

The black line on the chart shows the ONS revised figure, while the red line is WBS’ expected final value. The likely revisions to UK GDP are presented in the chart as 90% uncertainty bands. There is only a 10% chance that a GDP estimate higher or lower than these bands will be observed.
Dr Galvao said their central estimate is that year-on-year growth in Q2 would be closer to 3.6% than the 3.2% figure estimated by ONS.
“In a few years’ time, we expect to be looking back at the 2010 to 2014 recovery period through an even rosier lens,” says Galvao.
“The data released by the ONS is not the end of the story. Further revisions are to be expected as more up-todate information about the state of the economy arrives.
“Today’s estimates will inevitably be revised. We should therefore expect the economic history of the past five years to be rewritten – again and again. In the meantime, we should interpret the latest estimates with some caution and avoid reading too much into one particular estimate, view or interpretation of economic history.”