1. Goldman Sachs Global Economics, Commodities and Strategy Research 1 On the Accuracy of UK GDP Data Presentation to the Royal Statistical Society Kevin Daly Managing Director and Senior Economist Goldman Sachs May 2012 Goldman Sachs Global Economics, Commodities and Strategy Research

2. Goldman Sachs Global Economics, Commodities and Strategy Research 2 4 Key Points 1.Revisions to the ONS’s early GDP estimates are typically large. In the 10 years to 2009—the latest year for which fully- reconciled data are available—the average revision to the first release has been +0.1%qoq (+0.4%qoq annl.) and the average absolute revision has been +/-0.45%qoq (+/-1.8%qoq annl.). 2.The revisions to UK GDP data are larger than elsewhere. The average absolute revision to Euro area GDP has been +/-0.20%qoq annl. and to US GDP has been +/-0.33%qoq annl. 3.The biggest revisions to UK GDP data typically occur two to three years after the initial release. 4.Business surveys and labour market data provide a more accurate guide to ‘post-revision’ GDP data than the ONS’s own early estimates.

3. Goldman Sachs Global Economics, Commodities and Strategy Research 3 Bias and low correlation Early GDP estimates can suffer from two different forms of inaccuracy: 1.They can be biased relative to revised data; and/or 2.They can be poorly correlated with revised data. Early UK GDP estimates suffer from both forms of inaccuracy

4. Goldman Sachs Global Economics, Commodities and Strategy Research 4 Early UK GDP estimates are biased downwards

5. Goldman Sachs Global Economics, Commodities and Strategy Research 5 Early UK GDP estimates in the 10 years prior to the crisis contained no statistically-significant information Source: GS Global ECS Research

6. Goldman Sachs Global Economics, Commodities and Strategy Research 6 Other indicators provide a better guide to revised UK GDP data Source: GS Global ECS Research

7. Goldman Sachs Global Economics, Commodities and Strategy Research 7 Is it fair to include revisions due to ONS methodological changes? 1.Methodological changes bring measured GDP closer to ‘true GDP’ (“Revisions signal improvement in quality”). Why would you exclude them? 2.These are methodological changes that the ONS makes to the way that it calculates the data. These are not changes to the economy itself. 3.In the cross-country comparison of revisions, methodological changes to Euro area and US data are also included. 4.The ‘real time’ information provided by business surveys and labour market data are rarely subject to material methodological changes and yet they still perform better.

8. Goldman Sachs Global Economics, Commodities and Strategy Research 8 ONS data imply the is UK back in recession

9. Goldman Sachs Global Economics, Commodities and Strategy Research 9 UK PMIs are consistent with GDP growth around 2% annualised

10. Goldman Sachs Global Economics, Commodities and Strategy Research 10 Labour market data consistent with an improvement in activity since 2011Q3

11. Goldman Sachs Global Economics, Commodities and Strategy Research 11 GS UK Current Activity Indicator consistent with sluggish growth

12. Goldman Sachs Global Economics, Commodities and Strategy Research 12 Summary: 4 Key Points 1.Revisions to the ONS’s early GDP estimates are typically large. In the 10 years to 2009—the latest year for which fully- reconciled data are available—the average revision to the first release has been +0.1%qoq (+0.4%qoq annl.) and the average absolute revision has been +/-0.45%qoq (+/-1.8%qoq annl.). 2.The revisions to UK GDP data are larger than elsewhere. The average absolute revision to Euro area GDP has been +/-0.20%qoq annl. and to US GDP has been +/-0.33%qoq annl. 3.The biggest revisions to UK GDP data typically occur two to three years after the initial release. 4.Business surveys and labour market data provide a more accurate guide to ‘post-revision’ GDP data than the ONS’s own early estimates.

13. Goldman Sachs Global Economics, Commodities and Strategy Research 13 Disclaimer I, Kevin Daly, hereby certify that all of the views expressed in this report accurately reflect my personal views, which have not been influenced by considerations of the firm’s business or client relationships.