Data error may have pushed up UK inflation, rate cut bets in April: ONS

By Tom Rees

 

Britain’s statistics agency said it overstated the official inflation rate due to a mistake in numbers it was given on vehicle taxes, the latest in a string of errors to plague the country’s economic data. 

The Office for National Statistics said Thursday the headline inflation rate was 0.1 per cent higher than it should have been in April’s market-rattling figures, as a result of incorrect vehicle excise duty data from the government’s transport department. While the ONS will not revise its inflation estimate, it will use the correct data for May.

 

The error may have contributed to the sharp market reaction to April’s inflation data. It means that the spike in prices seen in April was less severe than first thought after inflation jumped to a 15-month high of 3.5 per cent.   

 

  The bigger-than-expected pick-up in price pressures in April’s initial data prompted traders to cut bets on an easing in interest rates by the Bank of England. It helped to retrench expectations of fewer reductions after the central bank’s hawkish tone at the May meeting. 

 

The data error means the inflation rate would have been closer to the 3.3 per cent consensus forecast and 3.4 per cent predicted by the central bank and a plurality of economists including Bloomberg Economics. Markets were little changed following Thursday’s statement, fully pricing in one more rate cut for this year.

 

Other volatile factors are thought to have pushed up April’s figure with the ONS collecting price data for air fares over Easter when demand spikes.

Credibility

The error is the latest to undermine the credibility of the UK’s official economic statistics after a series of high-profile problems that first hit its labor market statistics before spreading to other numbers. It is the second time in recent months that its price statistics have been affected by errors with the ONS suspending its producer price figures in March.

 

The ONS has faced mounting pressure and is awaiting the outcome of a government probe into its failings. It 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 vehicle excise duty 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.

 

“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 said in a statement. “We are reviewing our quality assurance processes for external data sources in light of this issue.”