The ONS has announced that the headline inflation rate was 0.1 per cent higher than it should have been in April
The UK’s official inflation rate was overstated in April due to incorrect data on vehicle taxes, according to the Office for National Statistics (ONS). This error has raised concerns about the accuracy of the country’s economic data and its impact on financial markets. The ONS has announced that the headline inflation rate was 0.1 per cent higher than it should have been in April. The mistake was due to incorrect vehicle excise duty (VED) data provided by the government’s transport department. While the ONS will not revise its inflation estimate for April, it will use the correct data for May.
This error may have contributed to the sharp market reaction to April’s inflation data. The inflation rate in April was initially reported to have jumped to a 15-month high of 3.5 per cent. However, with the corrected data, the inflation rate would have been closer to the 3.3 per cent consensus forecast and the 3.4 per cent predicted by the central bank and a plurality of economists, including Bloomberg Economics.
The initial data showing a bigger-than-expected increase in price pressures led traders to cut bets on an easing in interest rates by the Bank of England. This helped to retrench expectations of fewer rate reductions following the central bank’s hawkish tone at the May meeting. Markets were little changed following Thursday’s statement, with investors fully pricing in one more rate cut for this year.
Other factors are also thought to have contributed to the higher-than-expected inflation figure in April. The ONS collected price data for air fares during Easter, a period when demand typically spikes. This could have artificially inflated the inflation rate for that month.
This latest error is another blow to the credibility of the UK’s official economic statistics. The ONS has faced a series of high-profile problems in recent months, starting with issues in its labor market statistics and spreading to other numbers. This is the second time in recent months that its price statistics have been affected by errors. In March, the ONS suspended its producer price figures due to inaccuracies. The ONS is currently under significant pressure and is awaiting the outcome of a government probe into its failings. The agency is also without a permanent head after National Statistician Ian Diamond resigned last month on health grounds.
The latest error related to an overstatement of the number of vehicles subject to VED rates applicable in the first year of registration. VED is a tax applied to every vehicle using public roads in the UK, adjusted according to their environmental impact. It is expected to raise over £9 billion ($12.2 billion) in the current fiscal year, according to the Office for Budget Responsibility.
In a statement, the ONS said: “This has the effect of overstating the headline Consumer Price Inflation (CPI) and Retail Prices Index (RPI) annual rates by 0.1 percentage points for the year to April 2025 only. No other periods are affected.” The ONS added that it is reviewing its quality assurance processes for external data sources in light of this issue.
The ONS’s data errors have had far-reaching implications. Financial markets rely on accurate economic data to make informed decisions. Traders and investors use inflation data to predict future interest rate movements and adjust their portfolios accordingly. Inaccurate data can lead to misinformed decisions and potentially destabilize financial markets.
The government and the central bank also rely on accurate economic data to formulate policies. The Bank of England uses inflation data to set interest rates and manage monetary policy. If the inflation rate is overstated, it could lead to tighter monetary policy than necessary, potentially stifling economic growth.
The ONS’s credibility is crucial for maintaining confidence in the UK’s economic data. The agency has a responsibility to ensure the accuracy and reliability of its statistics. The latest error highlights the need for robust quality assurance processes and better coordination with external data providers.
The ONS’s overstatement of the inflation rate in April due to incorrect vehicle tax data is another setback for the agency. It underscores the importance of accurate economic data for financial markets and policymakers. The ONS must take steps to improve its data quality assurance processes to restore confidence in its statistics.
