A new early warning system using “big data” to track the UK economy confirms it lost momentum in the first quarter of the year.
The Office for National Statistics on Monday published an index based on value added tax returns for the first time. A majority of companies recorded a decline in turnover during the first quarter, prompting a “very slight” decrease in the measure.
The figures are among the first results of the statistics agency’s experiments with “big data” to try to follow the course of the economy in near real time and alert policymakers to looming booms and busts.
Alongside the VAT index the ONS published its first estimates of lorry traffic gathered from highway sensors in England, which it hopes will capture changes in the volume of international trade.
Official economic data for the first quarter have suggested that the UK economy continued to grow at a sluggish pace due to the effects of uncertainty over the outcome of Britain’s exit negotiations from the EU.
These new sources painted a “mixed picture” for the first quarter of the year, the ONS said, and were broadly in line with its long-term averages. The number of goods vehicles on the road during January and February 2019 was “broadly stable”, it said.
Britain’s number-crunchers are grappling with the challenge of how to measure and classify output in an increasingly digital and services-based economy. Monday’s figures follow a review in 2016 by Charles Bean, former deputy governor of the Bank of England, which called for a shift in culture at the ONS if it was to realise the potential of new technologies.
“Big data” refers to how advances in computing processes allow companies and government bodies such as the ONS to handle much larger data sets. The new index is based on about 20,000 monthly VAT returns as well as data from 27m observations from traffic sensors.
ONS lead data scientist Louisa Nolan said the information gives “much quicker signals of changes in the UK economy than was possible before”.
Future indicators will also include using the international ship tracking system to measure the volume of imports flowing into the UK.
The new indicators will be published a month before official monthly economic growth data and will directly compete with private sector surveys such as IHS Markit’s purchasing managers’ indices. PMI surveys provide economists and traders with an early clue as to the direction of the economy.
The ONS admitted, however, that the data were far from perfect. Companies that pay VAT monthly were not representative of the whole economy, they wrote, while road traffic sensors could drop out suddenly because of construction work or faults, distorting figures.
“It is important to note that we are not attempting to forecast or predict [growth] or other headline economic statistics here, and the indicators should not be used in this way,” the ONS wrote in its report on the experimental measures.
“They should be considered as early warning indicators providing timely insight into real activities in the economy,” the ONS said, adding that the information could provide guidance for rate-setters at the Bank of England.
The ONS’s new data science campus, set up last year at its headquarters in Newport in south Wales, led production of the indicators. On Friday, Philip Hammond, UK chancellor, announced a boost to the statistics agency’s funding to train a further 500 data scientists.