LONDON, April 25 (Reuters) - Britain’s Office for National Statistics is on the defensive after publishing figures showing the UK is back in recession - something disputed by the Bank of England and many economists, who say the data understates the true strength of the economy.
The quality of the ONS figures released on Wednesday is highly significant as the bad news may hurt business and consumer confidence, which is still fragile after the worsening in the euro zone debt crisis late last year. In addition, the BoE needs a solid basis in order to decide whether to give the economy another cash boost in May.
Doubts centre around the extreme weakness in construction shown by the ONS data, which the Bank of England has called perplexing. Anaemic services growth also puzzled many economists as surveys continue to paint a more positive picture.
But ONS chief economist Joe Grice defended the ONS’s numbers, which showed a 0.2 percent drop in gross domestic product, confounding economists’ forecasts for 0.1 percent growth, as construction slumped 3.0 percent on the quarter.
“We have no reason to suspect that these figures are any less reliable than would usually be the case,” he told reporters at a news conference in central London.
“We have a very large set of respondents to base our results on - 40,000 for the economy as a whole and for construction alone I think it’s about 8,000,” he said. “We go through our returns carefully, we go back to respondents and if anything looks odd, we question it, sometimes several times.”
But he pointed to the fact that the GDP figures released on Wednesday were preliminary and could still be revised. Revisions are normally in the order of plus or minus 0.2 percent, he said.
However, this did not lessen the doubts of economists and private-sector survey compilers. In 2009, when the ONS’s first estimate for the third quarter had shown a 0.4 percent quarterly contraction, the data was later revised to show a 0.2 percent increase.
“As was the case three years ago, there is a worry that by heralding a double-dip recession, misleading, gloomy official data shatter the revival of consumer and business confidence,” said Chris Williamson from Markit, compiler of the Purchasing Managers’ Indices (PMI), which showed solid growth.
The CBI business lobby’s quarterly survey of manufacturers - also published on Wednesday - showed the most upbeat assessment of the business situation in a year.
CBI Director General John Cridland called the GDP data “a surprise”.
“In particular, the weakness of the services sector data does not tally closely with a range of survey indicators suggesting that the sector has been picking up through the first quarter,” he said.
Official data showed only a 0.1 percent rise in services while the services PMI had indicated growth of some 0.5 percent.
Many City economists were also irritated. “Our reaction is one of disbelief - these figures just do not fit with our experience of the market,” said Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club.
The Bank of England has taken a different view of growth than the ONS in the past, pointing to evidence in an analysis in its August 2011 inflation report that weak early estimates of growth tended to be revised up by more than strong ones.