Nowcasting using real-time data

Policy makers and market analysts need real-time estimates of economic growth to guide their decision making.

The ONS has started publishing more near real-time measures of economic activity, including: (i) the number of online job adverts (ii) the volume of payments with debit/credit cards, which is likely to be related to household consumption, and (iii) the number of ship visits, which are likely to be associated with external trade. These measures are typically published 1 to 2 weeks after the reference period at high-frequency. They come with various problems including large outliers and short time-series, as identified in previous ESCoE research.

This research project aims to build a weekly index of UK economic activity (WEAI) using a set of the new ONS real-time economic indicators and some other high and low-frequency measures of economic activity.

The index will be estimated based on a methodology to be developed by  the researchers, based on previous contributions by Antolin-Diaz et al. (2021) and Lewis et al. (2020). The methodology will incorporate solutions to accommodate issues such as the short historical length of some time series and seasonality in the data.

The empirical methodology will aim to potentially incorporate alternative innovative data sources into the production of “flash” indicators of economic activity. Another feature of the method to be developed is that it should be possible to implement the algorithm automatically each week so that the UK WEAI could be released at the same time as the ONS real-time economic indicator weekly releases.

Together with the weekly index, we aim to produce estimates of the inherent uncertainty surrounding the real-time estimate of economic activity.

This project will improve understanding of how novel real-time indicators are linked to National Account aggregates and monthly economic activity measures. It will also increase capability and knowledge in the use of innovative and complex techniques for the application against high frequency data.

More generally, the new UK WEAI will improve policy making by providing reliable real-time information on UK aggregate economic activity. The current rich set of real-time economic indicators is linked to different features of aggregate economic activity. Building an aggregate index aims to represent economic activity better, improving the correlation with monthly UK GDP.