Regional GDP: Methods review

Programme:

Topic:

Regions

Summary

Accurate and timely regional economic data is crucial for effective policymaking and informed decision-making at all levels. Understanding the economic performance of different regions and countries within the UK allows policymakers to identify areas of strength and weakness, target support to those most in need, and develop policies that promote balanced and sustainable growth. Businesses can also use this information to make informed decisions about investment, expansion, and resource allocation.

In recent years, the UK Office for National Statistics (ONS) has significantly invested in the development of new and novel sub-national statistics to support economic analysis and insight at a regional and country level. One of these innovations was the introduction of experimental Quarterly Country and Regional Gross Domestic Product (QCRGDP) estimates in 2019. These aimed to provide detailed, timely insights into economic performance at a regional level.

However, despite initial success, the series faced some challenges that led to a temporary suspension in 2023. ESCoE was then commissioned to complete a review of its methods and processes.

Methods

The review includes:

Looking at the current constraining approach (to both Annual Reg GDP and Qtly UK GDP) and proposing any improvements to reduce the volatility and improve the quality of the estimates.
Considering as opposed to constraining to publish VAT in a purer form (which would be independent to other sources) – considering the link to annual regional GDP and UK GDP.
Reviewing the constraining steps to consider whether the outputs should constrain to both UK GDP and Annual Regional Accounts, one or neither.
Reviewing data sources including those used for UK GDP, Scottish and NI GDP or equivalent measures. This will include e review of constraining and revisions window practices in these products.
Considering the best way to produce and publish the estimates.

Key findings

The review identified some key challenges with the series:

Volatility and revisions: One of the primary issues was volatility in the estimates and sometimes large revisions. Such unpredictability undermined user confidence and decision-making.
Alignment with other data: QCRGDP estimates were constrained to align with Annual Regional Gross Value Added (ARGVA) data and UK Quarterly GDP (UKQGDP). While this ensured consistency, it also introduced complexities that could amplify revisions.
Source data suitability: Questions arose about the suitability of some source data, such as VAT returns, for tracking short-term regional economic changes. For some industries, these sources did not correlate well with annual data.

Recommendations

Short-term recommendations:

Primary constraint on ARGVA: The review proposes that revisions to historical data should only occur annually, in line with the release of updated ARGVA figures. This approach mirrors the practices used for UK National Accounts and aims to provide greater stability.
Strict revision windows: Introducing defined revision windows would limit the frequency of changes to historical data. For instance, past data would only be revised once a year when new ARGVA data are released, while more recent data (the “tail”) would align with UKQGDP.
Source data assessment: Before reintroducing the series, the ONS should evaluate the suitability of source data. Data that show weak correlation with annual figures should minimised to avoid introducing noise into the estimates.

Medium- and long-term recommendations:

Industry-by-industry method review: A detailed review of methods for each industry is needed to identify optimal approaches. This could include greater use of regionalised business survey data where VAT data prove inadequate, particularly for large businesses. Overall, though, it is important that data producers across the UK are involved in discussions about the optimal approach to the measurement of quarterly GDP at the country and regional level.
Development of new data sources: To enhance long-term accuracy, the ONS should explore the development of new regional data sources that are equivalent to those used at the national level. For example, better data on construction activity could address current gaps.

Impact

The project is helping to ensure that regional GDP has the confidence of users and is able to bring maximum value.

The recommendations outlined in the review should provide a clear roadmap for improving the quality and reliability of the estimates produced through Quarterly Country and Regional Gross Domestic Product (QCRGDP). ONS will be taking forward a number of these recommendations.