The problem with statistics

Inflation came in at 3.4% for the year to May, figures from the Office for National Statistics today show.

Tomorrow, the Bank of England has to decide whether to cut interest rates or not, based partly on those inflation figures.

The trouble is: no one is sure the ONS numbers are right anymore.

Last month the stat experts admitted they had the April numbers wrong – not by much, but by enough to upset the horses, or at least the markets.

The saying goes that central banking is about driving a car by looking through the rear-view mirror. At the moment there is a load of mud on the back window.

Inflation errors are bad enough, but the real source of concern is the labour market figures. We can’t say for sure how many people are in work and how many are not.

Given how quickly the government is trying to move on tax and regulation, this is a really bad time to discover the data is duff.

Economists say the Bank of England is at a serious disadvantage to other central banks, and more likely to make mistakes, because of this uncertainty.

It might leave rates too high for too long, cutting economic growth and hurting the government in the process. It might panic and cut them, even though it isn’t sure it should.

So, a PR problem here for the Bank, the ONS, the entire statistics profession and economists everywhere.

That’s good work for someone.

Simon French writes in The Times that the trouble with economic data is that there’s just too much of it.

Maybe the ONS figures would be better if it produced fewer of them.

Julian Jessop, a Fellow at The Institute of Economic Affairs, tells me: “I have some sympathy for the ONS and especially for the staff. The organisation has been under-resourced for some time, making it harder to adapt to new challenges and to incorporate new technologies, such as the breadth of price data now available in the retail sector. The search function for finding data is desperately in need of an update.”

This sounds London centric, but it seems fair to assume that the decision to relocate key functions to Newport has harmed recruitment and retention.

The wider issue here is that fewer people are willing to fill in the official forms from which the statistics are drawn.

The assumption is that people have privacy concerns and less faith in all institutions generally.

The ONS can’t fix that on its own, but it does need to clean house.

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