We are drowning in an ocean of useless economic data

Monthly GDP forecasts should be abolished – they affect decision-making and hide the bigger picture

Unfurl the bunting, break open the Champagne and start the Christmas festivities early. For all the doom and gloom surrounding the economy, it turned out yesterday that we are doing slightly better than we thought we were, with GDP expanding at a faster rate than was forecast. Yet output was actually falling the month before, or at least it was until all the data was revised, then re-based. And a month before that it was rising, reversing the collapse of a month earlier.

Confused? You probably should be. In fact, the monthly GDP data to which we have all become addicted was the stupidest idea ever.

The British economy is drowning in data and, while it might be useful for the City traders behind their Bloomberg terminals to have something to shift the markets, beyond that it serves little useful purpose.

All it does is generate noise that confuses policymakers.

Even worse, it encourages the kind of short-termism that has bedevilled the British economy for decades. The best thing we could do now is abolish monthly GDP, along with many of the other flash statics that clutter up the calendar, and focus on fixing some of our long-term problems instead.

What with the freezing weather, the strikes bringing the country to a standstill and England’s exit from the World Cup, none of us probably expected to have any very good news to wake up to yesterday morning.

But, hey, there was a surprise for us all, or at least to those of us who follow the financial news. Against expectations, the British economy actually managed to expand by 0.5pc in October. Has the anti-growth coalition been dramatically routed? Have we suddenly turbo-charged growth, and is Jeremy Hunt about to be celebrated as the man who finally cracked the secret to South Korean or Taiwanese-style expansions?

Well, not exactly. It turns out that output fell by 0.6pc in September, largely because we all had an extra day off for Queen Elizabeth II’S funeral. And that follows a 0.3pc decline in August, which itself followed a 0.2pc expansion in July, although that was subsequently revised down to just 0.1pc by the boffins at the Office for National Statistics after they had mislaid a few factories, or miscounted a half a dozen Amazon warehouses, or whatever it is exactly that makes the GDP figures go slightly wonky,

Economists and analysts can spend a lot of time poring over that monthly data, and trying to figure out what is happening to the underlying levels of output, and what special factors they have to account for to make sure they are getting an accurate picture. But there is a bigger question than just whether an extra bank holiday or some hotter or colder weather have shifted output by a fraction of a percentage point more than it should. It is this. Are we simply collecting more real time data on output than is actually necessary, and which may even be counter-productive?

Let’s take the latest three-month sequence as an example. It turns out that the UK’S GDP contracted a bit, then expanded a bit again, and ended up broadly flat, with no significant change in any direction, except for some minor bumps along the way. We basically already knew that, and we certainly didn’t need a monthly output indicator to tell us.

On one level, that may be fairly harmless. The data to calculate GDP has to be collected continuously anyway so it might as well be published in real time. Very occasionally, there might be a dramatic change in direction, and one which has somehow escaped everyone’s notice, and it would be worth knowing about that. And of course it gives the hedge funds betting on sterling and gilts something to get excited about, not to mention providing the financial pages with a lead item on what otherwise would be a dull day.

On another level, however, the UK, along with most other major developed economies, is suffering from a deluge of data. There are two big problems with that. The first is that it generates a lot of noise that distracts policymakers from looking at the bigger picture. The UK has lots of economic challenges right now, but whether the day off for Queen Elizabeth II’S funeral, and the next one for the King’s coronation, shave a quarter of a percentage point off output is not one of them. We should not be paying any attention to that.

Next, it encourages short-termism. If output rises fractionally for a couple of months ministers and central bakers will be encouraged to think everything is fine. If it falls, everyone starts running around in a panic with a growth plan or two to try and get the economy back on track. It doesn’t do any good, and often it just gets in the way of making sensible decisions. It is what happens from year to year that makes a difference, and even more what happens from decade to decade. If we started getting that right everything else would fall into place.

Here’s a simple solution. The best thing the Monetary Policy Committee and the Bank of England could do when it meets later this week to set interest rates is to just ignore the monthly data. Likewise, the Chancellor should pay no attention to it whatsoever. We have more data bombarding us than is helpful for any form of rational decision-making. Whether we even need quarterly data is open for debate. It might be better just to know what is happening from one year to the next. But monthly data is ridiculous – and the best thing we could do is save money by abolishing it before it does any more damage.