UK government statisticians get it wrong big time
The UK’s Office of National Statistics alerted markets on Wednesday that it had got its sums wrong. And that worries about the growth of inflation in the economy may be somewhat exaggerated so the need to increase rates may be lessened.
The ONS statement said that it had modified part of its software model to take into account VAT Fraud, but that a mistake had crept into the change, which had a knock on effect to the other figures.
The ONS has corrected the figures and now says that the cash value of national income grew by 4.8 percent not 6 percent as previously stated. The Bank of England monetary policy committee had noted the 6 percent number in the meeting and citied it as a worry as it indicated that inflation was running ahead of growth. With the figure revised downwards one of the reasons to increase rates has abated.
However, as we have pointed out over the last few months there are still reasons for the committee to think long and hard about still increasing rates. The newspaper headlines are currently awash with reports of record debt (as we reported yesterday) and the cost of buying a house is still on an upward trend.
The exposure of the consumer to record levels of debt means that they are highly exposed to any, as yet unforeseen global market forces. As the rate at which the consumer takes on more debt increases so is the likelihood that any increase in central bank rates will cause greater, and more rapid damage to the economy.
Whilst the Bank of England governor, Mervyn King may feel relaxed about the current state of the economy we worry that consumers are too extended and too dependant on non-wealth generating assets. Interest rates should move to a higher rate sooner to encourage a more mature long-term view from the consumer. Chancellor Gordon Brown is closely associated with the term ‘Prudence’ perhaps its time others where ‘encouraged’ to share his viewpoint.