First GDP monthly estimate

The ONS has continually battled the trade-off between publishing GDP data early and ensuring best possible accuracy. As any economist will know, GDP data (particularly the first estimate which typically only covers 40% of economic activity) is prone to heavy revisions.

As a result, after significant analysis, as well as an upgrading of systems, the ONS has decided to drop its existing preliminary estimate of GDP, which was traditionally published in April, July, October and January, four weeks after the end of each quarter, in favour of a monthly indicator and a rolling three-month figure. The first of which will be for the month of May, out on Tuesday. The rolling three-month figure will be the ONS’s preferred measure, given month on month figures could be volatile.

It is hoped that this new method, which will include new data from value added tax returns and a faster processing of service sector data, will allow the ONS to produce a fuller estimate of GDP two weeks later than it is currently. The ONS believes that the downside of a longer wait is offset by greater accuracy and reduction in revisions.

More detailed breakdowns of GDP by expenditure and income components will still be published on a quarterly basis as they are now.

There could be some teething problems with the switch however, specifically for the MPC, who will have to vote on whether to raise interest rates in August without full second quarter data. Indeed the figures released this week (the three months to May) are likely to illustrate a weaker picture of the economy given the poor weather in March and weak manufacturing performance in April, possibly making it difficult for the Bank to communicate the rationale for a rate rise in August.

Production and Trade

As well as the excitement of the first monthly GDP estimate, Tuesday will also see the release of production and trade data for May.

After a disappointing reading for manufacturing production in April (contracted by 1.4%), we expect to see a bit of a bounce back this time round, as the effects of the poor weather in February and March fully subside. Trade data is also expected to pick-up a little, however concerns still remain about the future, given on going trade tensions between the US and China.