UK’s growth rate could be revised after ONS accepts errors

The Office for National Statistics has accepted it made huge errors in the measurement of prices and output in the telecoms industry during the past two decades.

Rectifying the mistakes will increase the growth rate of the UK economy over 20 years, change the diagnosis of the country’s productivity crisis and raise serious questions over the measurement of inflation.

But improvements in the measurement will not be introduced into the national accounts until the autumn of 2021.

The statistical agency said on Monday that a three-year investigation revealed that it had failed to take account of technological improvements in the telecoms and internet sector.

The revision will show that instead of prices for telecoms services falling by a little more than half between 1997 and 2016, they actually fell by 95 per cent.

The lower measure of inflation for the sector in the national accounts will mean that output for telecoms over the period will have grown eight times more than previously stated.

The scale of the knock-on effects in other sectors is currently unknown, according to the ONS, because increasing the level of efficiency in the telecoms and internet sectors will result in smaller efficiency gains than previously recorded in other parts of the economy that make extensive use of technology.

The change also means that telecoms will move from being a laggard to a leader in the productivity statistics since 2010.

The ONS said it would not be able to comment on the consequences for other parts of the economy until October, when it has pieced together all the separate parts of gross domestic product.

In an article explaining the problem, the ONS said: “The effect of the new deflator would increase the volume of output of the telecommunications sector and will probably increase the headline volume measure of GDP.”

The agency said that the gains could be offset by sectors that use telecoms, which could see lower value-added, and it sought to downplay the overall effect on GDP growth over the period.

“Increases in the telecommunication services sector output would be partially offset by impacts to other industries, such that any increase to the volume measure of GDP will be significantly less than that driven by the increased output of the telecommunication sector,” it said.

But the ONS’s recognition that the price of telecoms services fell by 95 per cent raises questions about why it was still using data which show telecoms prices rising in its inflation figures.

In the consumer price index, the agency’s flagship inflation series, the category still titled “telecoms and telefax equipment and services” is shown to have seen a 6.9 per cent drop in prices between 1997 and 2016 — far less than the 95 per cent fall the ONS now believes to be true.

The convention with inflation measurement, unlike GDP, is never to revise past series, so the error suggests published inflation measures were persistently too high — and therefore the real growth of incomes too low.

Matthew Evans, director of markets at TechUK, the industry body, said: “These revised statistics show the huge improvement in the UK’s telecoms industry since the 1990s. With services being delivered more cheaply and with increasing levels of consumer satisfaction — thanks to significant levels of private sector investment deploying the best of global technology”.

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