Will this be another "Recession that never happened?"

Provisional UK economic figures for the second quarter are now out.

Let's be clear and honest - these figures are disappointing.

But they are provisional figures.

The media is shouting this morning about Britain being in recession, but THIS IS NOT A RELIABLE FINDING.

When the final figures come out it is highly likely that the numbers will be revised upwards, and if they are revised upwards by the typical amount applied to figures over the last few years, it is possible that we will find, not for the first time, that this "recession" never happened.

• Remember the so-called double dip recession of 2012? It never happened.
• Remember when everyone said Britain was the only G7 country whose economy had not returned to pandemic levels? It wasn't true.

Last year, when an upward revision by the Office for National Statistics demolished some much quoted political narratives, John Burn-Murdoch published an excellent piece in the FT,

THE DANGER OF BUILDING STRONG NARRATIVES ON WEAK DATA

which I blogged about here.

He made a really important point about how compiling data about what's happening to a country's economy, or to national health, is difficult, and some of the key data does not come in until months or even years after the first estimates have been published.

Furthermore, some countries' statistics are much more accurate than others, and some are more pessimistic.

Based on the absolute size of subsequent revisions to economic data among 24 countries who bother to go back and check their data and publish the revised ones, correcting the initial figures if they were wrong, Britain's ONS is one of the five most accurate among equivalent agencies - behind France, Canada, Italy and Spain but ahead of the US, Germany, Australia or Belgium and way ahead of most other democracies (all of which in turn will be producing far more accurate figures than most authoritarian or totalitarian regimes.)

However, when you look at the direction of the revisions, Britain stands revealed as publishing the most pessimistic initial statistics - ONS figures are the most likely to be revised up rather than down, where for the US it is the reverse.

The combination sounds counter-intuitive, but the figures back John Burn-Murdoch up on this: Britain manages to combine some of the most accurate initial economic stats in absolute terms with the most pessimistic ones in terms of the direction of errors.

Hence it is nearly always a mistake to get too invested in a political narrative based on early data which may well turn out not to be correct.

The UK's first estimates of economic activity tend to be too low and to be revised up by an average of 0.15 percentage points.

If that kind of upward revision happens to the last two quarters' data, there is a far from trivial possibility that we will find that the "recession" which the media are shouting about this morning never actually happened. 

POSTSCRIPT 21 FEBRUARY 2024

According to both the Independent and the Daily Mail, the Deputy governor of the Bank of England, Ben Broadbent, has also suggested (see here) that there is a very real possibility that future revisions to the statistics may mean that the recession in the second half of last year, quote, "never took place."

If the growth figures for the last two quarters are revised upwards in line with the average amount by which the initial estimates of growth have usually been revised upwards, and if the present quarter continues to show economic growth - as present economic indicators suggest it may - then there will not have been a recession.