For the last 62 years the United Kingdom's real GDP has grown at a rate of 2.43%. Per capita real GDP grew at 2.06% from £6,428 in 1948 to £22,410 in 2010. Both of these numbers are 'measured' in 2009 prices.
2.06% is a growth rate that produces a doubling every 35 years. If the UK can keep it up, by 2045 real GDP per capita will be at £45,000.
That was last year.
According to new data published by the Office for National Statistics in the United Kingdom National Accounts The Blue Book, 2011, history has changed from their own previous publications.
The new story is that for the last 62 years the United Kingdom real GDP has grown at a rate of 2.68%. Per capita real GDP grew at 2.31% from £5,559 in 1948 to £22,920 in 2010. This latter rate creates a doubling in 31 years. Four years faster.
This is a substantial change. The new real GDP number for 1948 is 14% lower than it was. Usually revisions of annual GDP are only for the recent years as new data is added from current series. Earlier years often stay the same. It is not true in this revision. The changes are the largest in the fifties, sixties and eighties as this table shows.
It also has changed the timing and rate of recovery of some of the recessions as seen in this graph.
Real GDP computations are created to remove the impact of the change in prices when measuring total output. One of the many problems in the construction is deciding which period's prices to use. The techniques to do this are numerous. Academics have been devising price indexes since the 17th century. Two 19th century economists, Paasche and Laspeyres are perhaps best known for creating indexes named after them.
Most national income accounts now use a technique call chain linking that takes the prices of each preceding year as the base for this year's computations. This helps compensate for the change in the importance of particular items produced and the introduction of new items.
The ratio of GDP measured in current prices to real GDP is called the GDP deflator. The rate of change of the deflator is one measure of inflation. If real output growth is a larger share of GDP growth, then the deflator will grow slower. The new data have the rate of inflation averaging 5.35% compared to an average rate of 5.60% using last year's data.
Why has there been this substantial change?
I do not have the answer. I doubt there are new data from all those years and they have not announced a major change in the computation technique. I would guess that it might be a change in a definition of one or more components that they have carried back, but that is only a guess.
Another possibility is that it is an error. When comparing the real GDP numbers for the first ten years that were published in 2005 with those published last year, the difference was always less that half a percent. This latest revision has all those years with a difference of more that 10 percent.
There does not seem to be an article on the Office of National Statistics website discussing these revisions. I have asked some UK economic historians and they were not aware of the change. This is a serious issue as these new data can revise conclusions on such issues as the severity and timing of business cycles, the testing of the Phillips Curve, Okun's Law, etc. Perhaps that discussion is happening and I do not know about it.
So the new economic history of the United Kingdom in the post WWII era is that it grew faster and there was less inflation than everyone thought.
That either of these versions is the more 'correct' story in in my mind only part of the story. The theme of MeasuringWorth is real time series are quite imperfect measures of value over time and that relative worth measures are better. But that is a different story.
Samuel H. Williamson
President of MeasuringWorth
Research Professor, University of Illinois at Chicago