April 2007 GDP Estimates

We project that the output of the economy in the three months ending in April was 0.7% higher than in the previous three months. Rounding of the figure masks what was probably a slight acceleration of growth in the economy as a result of expansion of both public and private sector services. This press release is produced ahead of the interest rate decision. However our view is that an interest rate increase is needed because of the presence of underlying inflationary pressure in the economy. In view of the risk of rising inflation expectations we think an increase of ½ percentage point would be a prudent decision. Our track record in producing early estimates of GDP suggests that our projection for the most recent three-month period has a standard error of 0.14% point when compared to the first estimate produced by the Office for National Statistics. This comparison can be made only for complete calendar quarters. Outside calendar quarters the figures are less reliable than this. A paper describing the methodology used to produce the data was published in the February 2005 volume of the Economic Journal. From April until October 2006 our estimates were computed using the Index of Services published by ONS. However this monthly series shows considerable volatility which has caused us some problems in estimating GDP. From our November 2006 press release we have therefore reverted to using a model of private services output based on indicator variables. This means that, while all our figures for calendar quarters are fully coherent with ONS data, our estimates of monthly private service output are not. The series can be thought of as indicating the underlying value of the ONS series. For more information please telephone Martin Weale on 020 7654 1945.