Britain is Being Shaped by Unsound Stats
The issue will impact business, politics and the media
They’re not blind, but it’s awfully blurry out there. From the economy to the borders, via the nagging issue of law and order, Britain’s official statistics have been shown to project a warped picture of reality.
The issue could have serious financial and societal impacts, a prospect which is yet to be properly reckoned with across business, politics and the media. Perhaps that’s because nobody has added up all of the recent data difficulties. Well, here’s that catalogue of uncertainty – one which a nation is being run on.
Strike one relates to the UK’s central bank, The Bank of England (BoE). It became an independent public organisation in 1998 under Tony Blair and Gordon Brown’s first New Labour administration.
The move meant Threadneedle Street, where the bank is headquartered, could set the UK’s interest rates separate from the Treasury, the Chancellor and the Prime Minister. The country’s monetary policy continues to be decided by the nine-strong Monetary Policy Committee (MPC) to this day.
The powerful group, which sits once every six weeks, includes the Governor of the BoE, his three Deputy Governors for Monetary Policy, Financial Stability and Markets and Banking and the bank’s chief economist. In addition, four external members of the MPC are appointed directly by the Chancellor.
In July 2023 the BoE appointed Ben Bernanke, the former Chair of the Federal Reserve of the US, to lead an investigation into the bank’s forecasting processes. The findings of that probe landed in April with an almighty thud.
Bernanke found “significant shortcomings” with the BoE’s forecasting and said it had “deteriorated significantly” – in the BoE’s defence, other central banks have faced the same issue. One of Bernanke’s main problems was with the BoE’s benchmark model, COMPASS.
For those who aren’t economic wonks out there, COMPASS is a “a medium-sized macroeconomic model, including 18 observable variables. It reflects both new classical and new Keynesian influences”.
The point is that it has some serious assumptions built into the model, namely that wages and prices adjust only slowly and that long-run inflation expectations are fixed at 2%, the BoE’s target set by the government.
Because of these shortcomings, BoE staff are using other means to forecast inflation, including sectoral statistical models, alongside COMPASS. The process has therefore become a bit of a hodgepodge of economic data. This complexity also consumes a “high fraction” of BoE staff energy and attention, Bernanke warned.
He also took the MPC’s conditional/qualified forecast to task. The alternative would be an unqualified prediction of where the BoE expects employment, inflation and economic growth to go.
Bernanke explained:
“Conditional forecasts do not necessarily reflect the forecasters’ beliefs about what will actually happen in the future.
“Instead, they are attempts to provide insight into how the world might look conditional on alternative assumptions about the structure of the economy, or about forces influencing the economy – assumptions that may or may not reflect what the forecasters actually expect.”
So how does this play out in reality? In 2020 and 2021 the conditional approach was arguably behind the BoE’s forecasting misses.
The biggest blunder had to be Bailey’s claim that inflation would be transitory and price pressures would only be temporary. He rowed back on the language in 2022.
Bernanke also criticised the bank’s communications efforts, with a particularly scathing review of the BoE’s “ad hoc” fan charts.
“Although the fan charts were innovative when introduced three decades ago, and were adopted by other central banks, over time they have become perceived as less useful, and some institutions have abandoned them,” he added.
The BoE is considering how it responds to the 12 recommendations in the report. As for a solid timeline on those reforms, the bank would only go as far to say that it intends – note the non-committal language here – to introduce a series of “discrete packages” of changes “over time”.
When you consider that the BoE’s assumptions are plugged-into government policy-making, investment projections and a whole manner of micro and macro-economic analysis, Bernanke’s findings are worrying in and of themselves.
Unfortunately, the UK has also had to face other uncertainties with its macroeconomic data. The Office for National Statistics (ONS) had to suspend its Labour Force Survey in October 2023.
The series provides one of the most authoritative data sets for unemployment, employment and wage growth in the UK. The “quality concern” can be boiled down to how the ONS collects the data and who the organisation is using for this process.
When the series was reintroduced in February 2024, the ONS said that it had, amongst other measures, restarted face-to-face interviews with households, increased the incentives for people who take part in the survey and boosted the sample size from 16,000 to 26,000, whilst increasing the number of young people (16 to 24-year-olds) it interviewed.
Beyond the financial stats, there are at least two other areas where Britain has to deal with potentially skew-whiff data.
Law and Order
Strike two relates to law and order. When politicians boast about crime falling, they are usually referencing the Crime Survey for England and Wales (CSEW).
Considered the ‘gold standard’ for tracking offences, the poll questions individuals in households over the age of 16. Notably, it doesn’t take into account crime committed against businesses and doesn’t cover all offences.
Police recorded crime – of actual offences – has been treated with deep suspicion since at least 2014 when the UK Statistics Authority issued a warning about the data.
The end result is that one data set, the CSEW, claims crime is going down, whilst another, police recorded crime in England and Wales, apparently shows that it’s actually going up. Robbery and knife crime are just some of those offences which have risen.
Here’s what the ONS says on the matter:
“Changes in recording practices have, over time, led to discontinuity in police recorded crime figures, with changes having a particularly large impact on the recording of violent crime over the last 10 years.
“Most recently, conduct crimes such as stalking and harassment, which were until May 2023 recorded in addition to other crimes, are now recorded as the sole offence if the conduct crime is deemed to be the more serious offence.
“As a result, offences that often occur alongside a conduct crime will no longer be recorded. Police recorded violence does not provide reliable trends in crime but is a better indicator of police activity.”
So, with high-profile stabbing attacks in the news, can anyone actually – in full confidence – tell you whether knife crime is going down or up? Imagine trying to implement policies on this basis.
Immigration
Strike three leads us to an equally contentious issue, immigration. As the UK Government’s Home Office concedes itself, its statistics on small boat journeys across the English Channel are imperfect.
By the very nature of this ‘irregular’ migration, officials will never be able to log all of these people and their vessels due to detection issues.
But you may be surprised to find out that the government wasn’t able to provide data for asylum claims from small boat arrivals between June to December 2023. The reason given is that there is a “transition” to a new data system underway.
The data set also comes with a sizable health warning: “The underlying casework systems on which this data is based are undergoing a process of change and therefore the published numbers may change in future quarters.”
This is only a small part of the immigration picture. The larger part is who is entering and the UK in totality. To attempt to measure this, the ONS uses another poll, the International Passenger Survey (IPS). The series has been running continuously since 1961.
Here’s the methodology behind it:
“The IPS conducts between 700,000 and 800,000 interviews a year, of which over 250,000 are used to produce estimates of overseas travel and tourism. The study results are used by various government departments, including the ONS, the Department for Transport, the Home Office, HM Revenue and Customs, VisitBritain and the national and regional Tourist Boards.”
Given its relatively long history, the IPS has faced issues in the past. In 2014, for example, the ONS admitted that it had underestimated migration from eastern European nations to the UK.
The body owned up to another, more considerable, mistake in 2019. Overall EU migration to the UK had been underestimated between the mid-2000s and 2016. Britain simply didn’t know who was coming in and out of the country.
One way to help fix such substantial errors in the future would be to actually record entry and exit checks on visas and passports, moving away from or providing a complementary system to the IPS survey.
The trouble is – like all of the statistical issues outlined here – it is much easier to stick with the status quo. There’s some comfort in that approach. But where is that process leading the UK? Nobody really knows again.
🤔 Other tech and media news I’ve found interesting
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TMTG latest. The company behind Truth Social now wants investors to stop shorting its stock. At around $45 per share, the NASDAQ-listed stock is up almost 250% compared to the same time last year. That is before Digital World Acquisition Corp merged with TMTG of course. You can follow all of the TMTG updates here.
UK general election book deals. The Sunday Times’ Tim Shipman now has some competition when it comes to chronicling recent British political history. ITV’s Anushka Asthana has signed a book deal with HarperCollins to write a title about the forthcoming general election. Further details about the project are to be confirmed.
Politics UK goes global. Popular political news aggregator Politics UK, which is now nearing 150,000 followers on Twitter/X, has launched a new channel, Politics Global. The account will mostly focus on Australian, Canadian and American news, NewsHub CEO Bailey Nash-Gardner told me in a forthcoming interview for The Political Press Box. His team, which is made up of volunteers, are also trialing subscription content in a bid to introduce more revenue streams.
The Telegraph is back on the market. UK Culture Secretary Lucy Frazer announced that RedBird IMI has walked away from acquiring The Telegraph Media Group and The Spectator magazine. There were concerns that the right-leaning outlets, which have great influence over the governing Conservative Party, could be lent on by the United Arab Emirates because of the country’s ties to RedBird IMI. But there could be further political headaches down the line for Barclays, which is hoping to auction the titles off, because a potential purchase of the assets by DMGT, owner of The Daily Mail, could trigger a Competition and Markets Authority probe.
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📧 Contact
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