Quality of UK economic data concerning, quick fix unlikely, say economists: Reuters poll

A recent Reuters poll reveals that nearly 85% of economists are concerned about the quality of official British economic data, particularly labor market statistics, which poses a "substantial" problem for the Bank of England's monetary policy decisions and complicates economic forecasting. While the Office for National Statistics has announced measures, including a £10 million investment, analysts doubt a quick resolution, suggesting prolonged uncertainty for policymakers and potential negative impacts on investor confidence.

Analysis

A significant majority of economists, nearly 85% according to a Reuters poll, have expressed concern over the quality of official UK economic statistics, introducing a critical layer of uncertainty for policymakers and investors. The core issue stems from the Office for National Statistics' (ONS) Labour Force Survey, which has suffered from a plunge in response rates, compromising the reliability of crucial jobs market data. The problem is tangible, as evidenced by the ONS's admission that April's consumer price inflation was overstated by 0.1 percentage point. The implications are substantial, with Bank of England Governor Andrew Bailey describing the data shortcomings as a significant problem for setting monetary policy. This unreliability directly complicates the BoE's ability to gauge inflationary pressures and undermines the accuracy of economic forecasts. Despite the ONS pledging a £10 million investment and leadership changes, market participants, including analysts at TD Securities and RBC Capital Markets, are skeptical of a quick fix, citing the agency's slow response and eroded trustworthiness. This prolonged period of data ambiguity heightens the risk of policy errors and could weigh on investor confidence in UK assets.

Key Decisions for Investors

• Investors should apply a higher degree of skepticism to UK macroeconomic forecasts, as they are based on data now widely considered to be unreliable, and should prepare for a wider range of potential economic outcomes.
• Anticipate increased volatility around Bank of England policy announcements, as decision-makers are operating with acknowledged data shortcomings, elevating the potential for market-moving surprises.
• It may be prudent to re-evaluate risk premiums for UK-specific assets, as the compromised data integrity and potential for policy missteps introduce an additional layer of uncertainty that may not be fully priced in.