The Bank of England Joins Those Who Doubt UK Growth Figures

(Bloomberg) — Figures next week are likely to paint a rosy picture for the UK economy in the first quarter. The trouble is that fewer and fewer people believe them.

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Bank of England officials are privately concerned that the data may be sending false signals that complicate the job of setting interest rates, according to people familiar with the matter.

Private-sector forecasters are equally worried that the growth numbers don’t reflect reality, raising further awkward questions for a national statistics agency that has been beset by data blunders in recent years.

Data since the pandemic show the economy growing healthily in the first and second quarters of the year before stalling or even contracting in the third and fourth. The suspicion is that the Office for National Statistics is struggling to adjust for shifts in spending habits.

“If recent history is any guide, the economy will slow markedly in the coming quarters, consistent with activity being frontloaded into the first three months of the year,” said Dan Hanson, chief UK economist at Bloomberg Economics. “We think one plausible explanation is that the seasonality in spending patterns has changed, which is creating gyrations in the quarterly figures.”

Bloomberg Economics expects next Thursday’s gross domestic product release to show growth of 0.6%, a sharp rebound from the previous quarter’s tepid 0.1% expansion. The BOE meanwhile is predicting 0.5%.

Either way, it would be the fastest quarterly growth since the first three months of 2025, with the pickup driven by a surprise surge in February.

The BOE has also publicly aired its misgivings, noting in its Monetary Policy Report last month that first-quarter growth of 0.5% would be “higher than the signal from survey indicators and follows a pattern of unusually high growth rates in Q1 in recent years.”

In response to growing concerns among economists, the ONS told Bloomberg it will start publishing non-seasonally adjusted GDP figures from next week “to help provide additional context.” It will also set out its latest thinking on the seasonality issue in a release on May 12.

“We continue to keep all our seasonal factors under close review both before and after we publish,” an ONS spokesperson said. “Our current tests show no evidence of statistically significant residual seasonality.”

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False Dawns

There has been a false dawn for growth every year between 2022 and 2025. The trend matters because the economic figures have often helped to shape the political narrative in Westminster.

Opposition parties have used weak figures in the second half to attack the ruling Labour Party ahead of the autumn budget. It also makes it more difficult for the BOE to judge demand and the level of interest rates needed to deliver on its 2% inflation target.

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“Being able to take a clear steer from GDP data is really important to the Monetary Policy Committee and the wider policy-setting community as a whole,” said Matt Swannell, chief economic advisor at the ITEM Club. “The fact that this has been repeated points to the fact there may be something going on in the data that suggests that the ONS may not be picking up the seasonal activity or the seasonal patterns in activity as effectively as it could do.”

Growth between 2023 and 2025 averaged 0.5% in the first quarter and 0.3% in the second before slowing sharply to effectively zero growth in the third and fourth. The same trend was seen in 2022, although that may have merely reflected the post-pandemic rebound losing steam.

Another major issue affecting Britain’s economic statistics would deal a further blow to the reputation of the ONS after the collapse of its labor market estimates and problems affecting a range of indicators, from retail sales to producer prices. The annual GDP figures have been subject to heavy revisions in recent years, though they have often been upgraded.

While the ONS found little evidence of problems with its seasonal adjustments for the quarterly data after an investigation, the statistics regulator has told it to take another look with external experts.

Analysis by Oxford Economics suggests the ONS is not accounting for a permanent shift in spending toward the first quarter since the pandemic, warning there are “significant limitations” to the statistics agency’s testing of this possible effect.

It believes the problem may lie in changes to when businesses invest and says non-seasonally adjusted data points to the first quarter shifting from one of the weakest periods to one of the strongest since the pandemic.

“While such seasonality effects can occur as one‑offs, for example last year activity was brought forward due to US tariffs, the fact that this pattern has been recurring suggests there may be issues with the Office for National Statistics’ seasonal adjustment since the pandemic,” said Modupe Adegbembo, economist at Jefferies.

“We also do not see a similarly pronounced pattern in the data for other economies such as the Eurozone which have faced similar trends,” she said.

It could also be just that certain one-off events coincidentally falling in the first half of the year are causing gyrations in the data, such as Donald Trump’s “Liberation Day” tariffs or the Iran war. But, with a cloud still hanging over the ONS, it is struggling to dispel doubts about its most important statistics.

The Bank of England Joins Those Who Doubt UK Growth Figures

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