Where has UK NGDP gone?

A James Alexander post

I need to apologise. On 23rd December I was asleep on the job of monitoring UK NGDP.

Having posted in October on the collapsing proxy for UK NGDP in 3Q15, “Nominal GVA”, and then posted again in November on the first estimate release of actual 3Q15 NGDP, I had not thought to check on the second estimate release for NGDP.

Only today when preparing for the release of the UK’s first estimate of 4Q15 RGDP tomorrow and that NGDP proxy, “Nominal GVA”, did I look at that second estimate of 3Q15 NGDP released just before Christmas.

Well, it was quite a shock. The data, charted here, shows that NGDP growth has been revised down considerably. No wonder the UK has seen steady stream of emollient commentary from the grandees of the Bank of England’s rate-setting Monetary Policy Committee, even our least favourite hawk chimed in this week. No wonder UK tax revenues are disappointing, it’s not just tax dodging Google or inevitable societal reactions to excessively high VAT rates. No wonder nominal wage growth has been disappointing for a few months. A very weakly growing nominal economy is responsible, as we suspected. This is awful.


It is the Bank of England’s responsibility to ease now. All that talk of a rate rise coming into view at the end of 2015 has done enormous damage, motivated by Carney and his friends asymmetrical inflation targets based on ceilings, a new central bank orthodoxy in place at the Fed and the ECB. This inflation-phobic stance needs to be changed as a first step, by moving to properly flexible, symmetrical, ideally level, inflation targets. Better to move to NGDP growth expectations targeting. The perfect illustration of working with problematic historic data is well illustrated here, although we had said that 3% NGDP growth was worryingly low.

6 thoughts on “Where has UK NGDP gone?

  1. Nice post James, but it might be down the back of the sofa, where the ONS have lost it. The revisions to 2014 don’t look very credible. NGVA now fell q/q in 2014 Q4, although RGDP was rising in that quarter at the same pace as Q3. The dip in the Y/Y rate is partly because of that poor quarter. NGVA growth averages 3% (annual rate) over the three quarters of 2015. Dunno. Not sure this is a crisis. Labour income growth looks weak in 2015 Q3 so you might have it right, though it has been incredibly strong.

  2. On third thoughts, they seem to have lost the current price output of the entire insurance industry (labelled sic code 65.1-2 in the spreadsheet) down the back of the sofa according to the low-level estimates. Back to thinking this data is not very credible.

  3. See next post. Nominal GVA (ex-insurance) was still hopeless. Waiting with baited breath for the re-release of the now withdrawn figures.

    Have asked the ONS to explain those Month 3 revisions to the deflator. The press release (pp. 53-4) seemed to blame (unexplained) downward revisions to gross corporate profits, bizarrely. All a mess indeed, due to lowflation confusing everyone. A sort of Y2K bug.

  4. Pingback: Is the roof fixed yet? | Policy Exchange

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