NEVER say the work of economists and statisticians is dull. According to calculations by the Office for National Statistics, the activities of prostitutes and drug dealers are now adding £10 billion a year to the UK economy.
But how do they know exactly? From the turnover of brothels to the sales of crack cocaine, transactions “when all units involved enter the actions voluntarily” are now to be included in our national definition of GDP – this to comply with the European System of Accounts.
Quite how the ONS has calculated that prostitution adds £4.4bn to the UK’s GDP and illegal drugs £5.3bn must rank as one of the most bizarre calculations in contemporary statistics. It reckons each of the UK’s estimated 60,879 prostitutes gets an average of 25 clients a week, at an average cost of £67.16 – apparently. It also estimates that the UK has 38,000 heroin users, while sales of the drug came to £754 million at a street price of £37 a gram.
Not only are these calculations dated – pertaining to 2009 – but the whole exercise, as the ONS admits, is based on pure guesswork.
However, there is no need to resort to such dodgy and pointless accounting to find some good reasons to believe our economy is expanding at a cracking pace.
Over the past two weeks it has taken a back seat to political ructions ranging from the aftermath of the Euro elections to the latest fusillade of statistical munitions in Scotland’s independence referendum. But the aftershocks from what was widely hailed as a Ukip “political earthquake” have quickly subsided, while neither side in the independence battle has yet delivered a winning blow.
Amid the acreage of media coverage it was easy to forget that there’s an economy beating away underneath. But the beat of our economic heart looks to be getting ever stronger.
According to the latest Confederation of British Industry (CBI) growth indicator, economic growth reached a new record high in May, posting the highest reading since data began in 2003. Its survey of 726 respondents across manufacturing, retail and services registered record high growth in business activity. The pace of growth is predicted to remain firmly above average for the coming quarter too.
Meanwhile the British Chambers of Commerce has joined the Three Per Cent Plus Club, upgrading its growth forecast for 2014 from 2.8 per cent to 3.1 per cent. The figure leaves the official Office for Budget Responsibility forecast of 2.7 per cent well behind and, if achieved, would be the best performance since the financial crisis struck in 2007.
Meanwhile, consumer confidence has improved to a nine-year high in May. The GfK/NOP confidence index is now substantially above its long-term average, having been persistently below it from October 2007. Consumers have become increasingly upbeat about the economy’s performance over the past year and they are becoming ever more confident in the outlook. They are also generally happier about their financial situation, while their opinion of the climate for making major purchases improved modestly further in May to its highest level since September 2007.
These readings underpin latest figures from the John Lewis department store chain, which reports a year-on-year 14.2 per cent jump in sales in the week to 24 May. All the sales directories are said to report double-digit growth, including fashion, electrical and home technology while online sales growth soared 30.8 per cent year-on-year in the week to 17 May.
And Scotland does not appear to be missing out. Waitrose, the food retailing arm of John Lewis, has now submitted a planning application for a new store in Ayr. If the application is successful, it would be the eighth Waitrose store in Scotland (Milngavie will be seventh – construction has yet to start). And last week the group announced that there are early stage plans for a new Waitrose in Corstorphine, Edinburgh.
Nor does that exhaust the upbeat news in the pipeline. This week brings key Purchasing Managers Index readings for manufacturing, construction and services. The manufacturing survey due tomorrow is expected to show overall activity expanded strongly in May.
Says Howard Archer, economist at Global Insight: “The prospects look largely encouraging for manufacturers. Much improved consumer confidence, higher employment, a robust housing market and improving consumer purchasing power should bolster demand for consumer goods.
“Additionally, ongoing healthy UK economic activity and robust business confidence should boost investment plans and hence lift demand for capital goods.”
The construction PMI due on Tuesday should indicate robust activity in May with the index essentially stable at a high level. House-building is leading the way with activity in April still buoyant after reaching a ten-year high in January while there was also ongoing growth in commercial activity. Latest hard data shows that construction output grew by 5.4 per cent year-on-year in the first quarter.
And the service sector PMI due on Thursday should also point to healthy expansion in May. Global Insight expects business activity to have held up well at 58.5 in May after rising to a 2014 high of 58.7 in April from 57.6 in March. “The recent sustained improvement in economic activity and elevated confidence in the outlook”, Archer adds, “is supporting demand across a wide range of business services, such as marketing and advertising, public relations, corporate finance transactions, IT provision, accountancy, legal advice, recruitment, training and haulage. Meanwhile, the overall substantial pick-up in housing market activity is helping estate agents and a number of other property-related services.”
So, all in all, it is shaping up to be a highly encouraging summer for the UK economy. But with this strengthening pace of advance will come stronger concerns about a rise in interest rates rather sooner than Bank of England Governor Mark Carney has indicated. Indeed, a rate rise before Christmas may well be required if expansion continues at the pace now confidently predicted by all those business and confidence surveys. «