Russell Lynch: Old fashioned number-crunchers get set for data revolution

DRIVING a car using the rear-view mirror is never a good idea. But that’s what the Bank of England’s rate-setters do month after month, as they decide whether to stick or twist on the economy.

Privately one of the biggest gripes of policymakers is waiting for data crucial to getting a handle on what’s going on. A case in point are the jobs figures for the three months to January, which only just turned up this week. Contrast that with the much more timely figures released within days of the month’s end in the US.

By and large, the only reasonably prompt data the monetary policy committee has to work with are the purchasing manager indices on construction, manufacturing and services produced by IHS Markit, formed from relatively small samples, until the official figures trundle along weeks later. And as former Bank of England deputy-governor Sir Charlie Bean pointed out in his review of the nation’s number-crunchers in 2016, the “longer a decision-maker has to wait for the statistics, the less useful they are likely to be”.

But what if you could use the vast array of data collected by the Government — anything from VAT returns to ship and vehicle movements — to reveal what the economy is doing far more quickly? The Office for National Statistics’ new Data Science Campus gave us a glimpse of the future this week with a new commitment to publish regular information on these quirkier topics, outside the traditional areas such as retail, industrial production and GDP releases.

Take VAT returns for example. The science campus — itself set up as a response to the Bean review — has used them to devise a diffusion index, which essentially is a number produced by dividing the number of firms showing rising turnover by those reporting falling sales. By their reckoning they would have identified the first quarter of the 2008/9 recession fully five months before it turned up in official statistics — July 2008 rather than the following December. They can also track changes in VAT behaviour to detect economic stress indicators such as rising rebates because VATable spending is more than income, and also the number of “replacements” where initial VAT returns are revised.

The ONS is understandably chary about putting too much weight on these stats; some industries report VAT sooner than others, and firms are of different sizes. But even in the ONS’s first take on this data, a potential spotlight is being shone on 250,000 of the country’s two million VAT-registered firms. Refined and used with caution, this could be a goldmine for rate-setters looking for more timely data on what’s happening — for example, December’s figures showed the diffusion index turning negative.

The science campus is also producing information using the automatic identification system used on shipping more than 300 tonnes to give a fast indication of activity in that area and hence trade, as the data is available in virtually real time and could be useful to identify trends. The correlation between shipping and trade is “surprisingly good”, and the average traffic movements for the largest lorry movements “are consistent with at least some economic events”.

As the campus’s Louisa Nolan points out, there “is always a trade off between timeliness and quality” in any data. But the UK has been late to the party in using administrative data compared with the likes of Canada and Scandinavia, as Bean pointed out three years ago.

In the era of big data, knocking on doors and posting paper forms sounds anachronistic when others such as New Zealand and the Netherlands are incorporating supermarket scanner data into their statistics.

Until recently there were legal barriers, as it was up to government departments to grant access rather than the automatic right of the statisticians to get access to the data. That, combined with a Sir Humphrey-ish tendency towards secrecy in Whitehall, has left the UK trailing way behind others, although since the 2017 Digital Economy Act, the ONS has a clearer legal pathway to much more information.