Economy 'stronger than forecast'

The UK economy probably grew at a faster rate in the third quarter than the 0.4% reported, according to Bank of England deputy governor Rachel Lomax.

Private sector business surveys suggest a stronger economy than official estimates, Ms Lomax said. Other surveys collectively show a rapid slowdown in UK house price growth, she pointed out. This means that despite a strong economic growth, base rates will probably stay on hold at 4.75%. Official data comes from the Office for National Statistics (ONS). Though reliable, ONS data takes longer to publish, so now the BoE is calling for faster delivery of data so it can make more effective policy decisions. "Recent work by the Bank has shown that private sector surveys add value, even when preliminary ONS estimates are available," Ms Lomax said in a speech to the North Wales Business Club.

The ONS is due to publish its second estimate of third quarter growth on Friday. "The MPC judges that overall growth was a little higher in the third quarter than the official data currently indicate," Ms Lomax said. The Bank said successful monetary policy depends on having good information. Rachel Lomax cited the late 1980s as an example of a time when weak economic figures were published, but substantially revised upwards years later.

"The statistical fog surrounding the true state of the economy has proved a particularly potent breeding ground for policy errors in the past," she said. Improving the quality of national statistics is the single the best way of making sure the Monetary Policy Committee (MPC) makes the right decisions, she said. The Bank of England is working in tandem with the ONS to improve the quality and speed of delivery of data. Her remarks follow criticism from the House of Lords Economic Affairs Committee, which said the MPC had held interest rates too high given that inflation was way below the 2% target.

A slowdown in the housing market and this year's surge in oil prices has made economic forecasting all the more tricky, leading to a more uncertain outlook. "This year rising oil prices and a significant slowdown in the housing market have awoken bad memories of the 1970s and 1980s," Ms Lomax said. "The MPC will be doing well if it can achieve the same stability over the next decade as we have enjoyed over the past 10 years." Decisions on interest rates are made after the MPC gathers together the range of indicators available every month. The clearest signals come when all indicators are pointing the same direction, Ms Lomax intimated. "In economic assessment, there is safety in numbers."
