UK Q4 GDP fall may reflect workday effect
Simon Ward
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Does anyone seriously believe that the French economy expanded by 0.2% last quarter while the UK contracted by the same percentage, as claimed by the respective national statistics bodies?
Business surveys suggest the opposite experience: the average level of the PMI composite output index was above the breakeven 50 level in the UK last quarter but below it in France.
The guess here is that the GDP discrepancy is due to French statisticians, but not their UK counterparts, applying a working-day adjustment to the raw numbers. There were 63 working days in the UK last quarter, one fewer than in the prior four years, according to www.work-day.co.uk. The Office for National Statistics adjusts GDP data for seasonal factors but not working days.
Working-day adjustments applied by the French and other continental European national statistics bodies are not proportional but are derived from regression models. One cannot, in other words, estimate workday-adjusted growth for the UK last quarter by adding back 1 as a percentage of 63, or 1.6% – the actual effect will have been much smaller. It is likely, however, that a properly-calculated correction would wipe out the reported 0.2% GDP decline.
If this explanation is correct, first-quarter GDP figures will flatter the UK relative to France as the workday effect reverses.
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