The reality of all this is that, as the FT reports, is that these figures have been revised upwards because instead of UK companies selling off their stocks of unsold goods in 2020 and 2021, as the ONS thought they were doing, they were, in fact, increasing those stocks. That’s all that really needs to be known about this restatement, and to claim that the UK was better off as a result can, as accounting claims go, be filed in the category that is politely referred to as complete codswallop (other words are available).
As any decent accountant will tell you, the movement in stocks of goods held for sale during the course of the period does not actually change the record of income arising during the course of that period. There is good reason for that. Goods held for sale are an asset, or stock. They are not items sold or consumed, which is a flow. And the ONS is clearly incapable of spotting the difference. As a result, it is claiming an increase in assets is income when no one has actually seen the benefit in their consumption. That’s a pretty big claim to make because by common understandings of what makes up income, that’s just wrong.
One day we might, I hope, have UK national income data that makes accounting sense.
This is about GDP, as ONS points out.
P – production. A change in stock levels is a change in production.
Ritchie’s complaining that it’s not a measure of change in income.
We really can’t allow him to get close to economic numbers now, can we?
P – production. A change in stock levels is a change in production.
No, not necessarily and as the quote clearly shows, it could be the effect of a change in consumption.
Stock levels, which is a stock variable, is the difference between two flow variables, i.e., production and consumption, in the same way that the level of water in a bathtub is the result of the rate of water flowing in and the rate of water draining out.
” Stock levels, which is a stock variable, is the difference between two flow variables, i.e., production and consumption, in the same way that the level of water in a bathtub is the result of the rate of water flowing in and the rate of water draining out.”
No it can’t. Show me a way that the bath can fill up without the taps being on. If the plug is fully in and no water is escaping then the water level only rises if the taps are on. Otherwise the level just remains the same.
Same goes for stock – even if sales fall to zero stock levels remain flat unless you buy more at the same time, which means additional production.
Does it matter where the production happens? For example, the stock of Beaujolais in my local offie may increase without there having been any change in UK production of Beaujolais.
@ decnine
In principle, yes – but when GDP is calculated as “value added” by netting off all input costs from the value of output, then an error in calculating stock levels will yield an indentical error in GDP calculated thence, no matter whether it’s bottles of whisky or bottles of Beaujolais.