Transcript

MILES FLETCHER

Welcome again to Statistically Speaking the official podcast of the UK’s Office for National Statistics. I'm Miles Fletcher, and this time, we're going to talk about a very famous and long running statistic that’s still regarded as the single most important economic indicator of them all. I'm talking of course about GDP (Gross Domestic Product), the expansion or contraction of which is the yardstick against which the success or failure of the world's economies is measured. It's been around a long time, since around the time of the Second World War, in fact, but is its pre-eminence now coming to an end? GDP misses some things out - that which matters, as was once memorably claimed. So we'll be talking about how the ONS has been updating GDP to keep it relevant and developing new complementary measures of economic and social wellbeing that could perhaps, in future, supplant GDP itself. And in the current economic climate, we cannot avoid the “R” word. What exactly is a recession? How much does it actually matter, if it's only a technical one? Is it the difference between economic disaster and salvation? Spoiler alert, it really isn't.

Anyway, we have a panel of top ONS folk to explain it all: Darren Morgan is director of economic statistics production and analysis, Grant Fitzner is Chief Economist and director of macro-economic statistics and analysis, and also with us is Liz McKeown, Director of Public Policy Analysis, who is leading the drive towards these broader measures on social and economic welfare.

Welcome, everyone.

Darren to start with you. You are responsible for the production of the UK’s GDP estimates. So let's start by reminding ourselves what precisely it measures, it's basically seeking to put a value on all economic activity over a given period.

DARREN MORGAN

Yeah, so we look at GDP and we measure the economy in three different ways. First of all, we do it viawhat you call the output approach, and most simply, that's everything that's produced in the economy, and that can be cars rolling off the production line, that can be a lawyer providing advice as a service, and it can be public services as well. So surgeries, GP appointments and so on. So everything we produce in the economy. We also look at measuring the economy, everything that is spent, so that could be you and I in household, spending money in the shops or on leisure activities. It can be businesses spending money on goods and services. And it can also mean the government spending money, so everything we spend as well. And the third way we measure GDP is the income approach, which is basically everything that's earned in the economy. So for us in terms of households that's wages and salaries, for businesses it’s profit, for example. So we measure everything we produce, everything we spend and everything we earn, and in principle, they should all add up.

MF

And you're boiling it down then, a vast amount of data flowing into the ONS, boiling it all down to one single indicator.

DM

We do, and we do that by approaching thousands and thousands of businesses asking them about their performance. We speak to thousands of households about their behaviour. And we also use a lot of data already available withing government, so what we call administrative data - data that already exists. And we bring all those different data sources into the building, we look at it and we confront it, and we come up with ultimately, as you suggest, a single number on the growth of the economy.

MF
What's changed in the in the collection of data now? How timely a process is this?

DM

So in the UK, we've got one of the timeliest measures of the economy in the world. And we only have one of two countries who produce a monthly measure the economy, so we do it much more quickly, and obviously it is completely different to how we did it say, even 10 or 15 years ago. We collect most of our data now from businesses online. Whereas previously we used to send a questionnaire to them, used to write the questionnaire and they would send it back to us, and that could take a week or weeks to do that. Businesses can fill the form in now sat at their desk online, do it very quickly and it reaches us straightaway.

MF

And you mentioned administrative data as well. So that's coming from other parts of government. What are the main sources there? How is that gathered?

DM

So that's correct. So what we try to do is minimise the burden on businesses and households, so some businesses may have to complete a tax return to HMRC for example. So we are able to use that information and bring it in, sothat's one example. Pay As You Earn, people who use pay as you earn systems, will be well aware that we use that in our labour market numbers. But we use lots of different sources that are already available across government, and we reuse them for statistical purposes, like I said, to provide better estimates, because that data tends to be very good, but also to minimise the burden, as I said on households and businesses at the same time.

MF

And what is the coverage, in terms of what's included, how has that evolved in recent years?

DM

So in a way, in terms of what we call the boundary, the economic boundary, that has actually stayed very similar over a long period of time. It is very traditional in terms of the boundary we measure. So, like I said, it's sort of business activities, household activity and government activity. But it is along those lines about how much is produced, how much is spent, how much is earned, but the boundary for the economy has been very similar for 50 years.

MF

Nevertheless, there are some things included in GDP which might surprise some people. For example, in the most recent GDP release we talked about the fall in the number of pupils in classrooms in the last quarter of 2022.

DM

The public services was actually a really key indicator for the number that we published for December, and we saw a fall in the number of GP appointments, a fall in the number of operations, less vaccinations being given because the autumn booster campaign tailed off. And we also saw lower attendance in schools, because in the lead up to Christmas not so many pupils will go into school as we normally see. And the reason why we measure that, as you can imagine we measure teacher salaries, doctor salaries, we measure how much is invested in the health service, how much is invested in schools, and obviously those schools and hospitals buy goods and services. So, it's a really important part of the economy. So of course we measure the goods and services that they produce as well. It's a really important part of the economic measurement for GDP.