Gaffes, revisions to major series, and suggestions of political interference in sensitive public sector estimates have all served to undermine the credibility of the UK's main statistical agency, the Office for National Statistics (see my earlier posts). Now Malcolm Moore at the DailyTelegraph claims the Bank of England loses faith in figures from ONS:
The Bank of England has set up a discreet unit to produce its own economic figures because it does not trust the official statistics. The vote of no confidence will be another blow to the Office for National Statistics, which has suffered increasing criticism for providing flawed numbers.
The ONS, under the new national statistician Karen Dunnell, is in the process of becoming independentfrom the Treasury in order to be seen as more trustworthy.
The Bank's "Data Uncertainty" team has the job of finding the holes in national statistics and plugging them with the help of private surveys and reports from the Bank's regional observers. Together with the Bank's monetary analysis unit, it provides the estimates of gross domestic product that help the Bank make interest rate decisions.
The team was created last year, as a gap opened up between official numbers and the private surveys, such as the indexes produced by the Chartered Institute of Purchasing and Supply. In a chapter of its annual report called "Data Uncertainty", the Bank admitted it "put some weight" on the other evidence.
In the last Inflation Report, in November, Mervyn King, the Bank's governor, said in the services sector "we know we do not have a good handle on what is happening. We think it's probably a little stronger than the official data."
Privately, the ONS is furious that the Bank would trust a survey of 5,000 respondents above its own surveys, which tend to have around 100,000 respondents.
Yesterday, however, the ONS was tight-lipped, saying: "This is a matter for the Bank of England to comment on." A spokesman for the Bank denied there was a specific team. "We obviously have got staff who are charged to look at how we can improve our analysis. There is no unit. They can come from any part of our monetary analysis team. There is nothing in terms of criticism of the ONS."
City economists are unimpressed by ONS gaffes:
Economists in the City said they are well aware of the situation. Malcolm Barr, at JP Morgan, said the existence of the team "is no secret". He said: "Charlie Bean, the Bank's chief economist, invited us into the Bank to give our views on the economic model and said the Bank is paying close attention to data uncertainty." He said he felt the Bank was sensitively dealing with the issue that the official figures may not reflect everything going on in the economy.
Others were more scathing. David Smith, at Williams de Bröe, of the shadow monetary policy committee, said: "The figures are useless, you cannot trust them. But I suspect that the Bank has been analysing them for a long time, and in setting up a unit, they have merely put everyone doing the same job into the same room." He said sorting out the ONS is a "very very important issue, and a hot potato," and suggested splitting it into two divisions.He said: "If you look at continental Europe, where central banks are often the only honest people on the block, I do think that splitting the ONS and giving macroeconomic responsibility to the Bank of England would be an eminently sensible guarantee of decent, honest statistics."
It makes little sense for the Bank of England to produce the UK's national accounts - though it is testiment to how poorly the ONS has performed of late that anyone should be proposing such an option. A more useful approach would be for the Bank to publish a robust composite monthly index of overall economic activity and inflationary pressure, drawing on the work of Stock and Watson, much like the Chicago Fed National Activity Index. The Bank could also develop advance GDP estimates, but as NIESR already do this so I doubt this would add much value.
While I doubt the mooted 'independence' of the ONS will make much substantive difference to the quality of National Statistics, it might help to allay concerns about political interference in the production of official statistics.
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