The Office for National Statistics has suggested that the UK may not, after all, have suffered a double-dip recession last year. Revised construction industry data, showing a slightly smaller contraction in Q1 2012 than previously estimated, boost overall “growth” for that quarter to 0%, rather than the 0.1% contraction originally recorded.
This tiny shift in the data has monumental importance. The UK has now not technically been in recession since mid-2009 (a recession is defined as two successive quarters of negative growth). There hasn’t been any growth to speak of, but a flat economy is a very different psychological deal to one that seems to keep contracting. It’s not hard to imagine your prototypical business manager choosing to continue business as usual (including hiring and investing) in a flat economy, where repeated recessions might scare him into undue caution. Multiply that effect across the whole country, and you can see how the double-dip story we’ve been living for the last year might have markedly damaged real economic growth.
On one level, we can see this as a problem of truth v. untruth, rather than competing truths: the data was wrong, therefore the double-dip story was an untruth. However, the real issue is one of scale. Macroeconomic statistics are far too imprecise to be dealing in such small fluctuations. As Stephanie Flanders, the BBC Economics Editor, reminded us today, economists use decimal points to prove they have a sense of humour. A shift in an estimate of 0.1% should not be this meaningful!
So we have one truth, which is the honest, considered decimal-pointed estimate our best macroeconomists can give us, quarter-by-quarter. This shows tiny increments of growth and contraction, and may justifiably lead us to declare double- or even triple- dip recessions. And we have another truth, taking perhaps a more realistic degree of approximation, that declares the UK economy has been basically flat for four years.
Both truths are valid, but their effects on business confidence could be poles apart. Perhaps it’s time for our politicians and media to start ignoring the decimal-pointed estimates in favour of a different truth that may serve our economy rather better.