charles bean : measuring recession and recovery – an economic perspective speech by mr charles bean, deputy governor for monetary policy at the bank of england, at the royal statistical society ( rss ) statistics user forum conference, london, 27 october 2010. * * * good morning! it is a great pleasure to open this conference dedicated to exploring the way statistics are used in the study and control of the business cycle and, in particular, the issues thrown up by the great contraction of 2008 – 9. before i turn to that topic, however, it might be useful if i start by saying a few words about the sort of information that the bank of england ’ s monetary policy committee ( mpc ) relies on when it sets the level of bank rate ( or the amount of asset purchases ) each month. first, and most obviously, there is the wealth of official statistics on the economy generated by the office for national statistics ( ons ) and other national statistical agencies, covering such variables as output, employment, pay and prices. that is the absolute bedrock on which our analysis and policy rests, and without it we would struggle to do our job. but the picture they provide is rarely perfect. series often do not quite correspond to the appropriate economic concept, either because they are conceptually difficult to measure or else because only imperfect proxies are available. as an example, take output. in the old days, when the economy was dominated by manufacturing, it might have been relatively easy to measure the volume of output and value added of different industries. but our economy today is dominated by services. conceptually even defining the value added in, say, the financial sector, let alone measuring it, is not straightforward. moreover, the meaning of a series often changes subtly over time as the economy evolves. manufacturing today is a very different animal from manufacturing 30 years ago : for instance, the value added of rolls - royce aero engines today comes as much from the after - sales and maintenance as from the engine assembly itself. finally, and most saliently for real - time policy analysis, the official data invariably appear with a delay of some months and can be substantially revised as more information accrues and the ons improve their methodology. for that reason, the monetary policy committee supplements the official data with two other sources of information that are more timely, even if they lack precision compared with the official data. the first are the regular business surveys from the likes of the confederation of british industry and the british chambers

2017 sources : ons, zoopla / whenfresh, land registry, bank of england, and bank calculations. another upside risk is a re - acceleration of house prices. i ’ m not so daring as to offer you a precise forecast. let me just point to a couple of pieces of evidence about the housing market and let you draw your own conclusions. one is that housing is currently “ cheaper ” than government debt, at least on a very crude comparison of their yields. the red line in chart 12 is the difference between the estimated rental yield on housing and the yield on 10 - year indexed government debt, an indicator of the “ neutral ” real rate of interest. when this spread is high, it ’ s telling you that, unless you think rental prices are going to weaken, it ’ s prospectively cheaper to buy a house than rent one. you might in that environment expect the purchase price of housing to grow faster than usual. the blue line, which is average growth in house prices over the following five years, shows that this is what has tended to happen. for example, the house price boom in the early years of the millennium was preceded by a steep fall in longer - term real interest rates ( driven, i would suggest, by a decline in the neutral rate of interest ), through the second half of the 90s. that raised significantly the spread between rental yields and those on indexed government debt – when the spread was at its widest, in 1995, the gap between the two was 10 % points. but that boom in house prices, in its turn, depressed rental yields significantly – to such an extent the spread over gilt yields fell to less than 4 % points. relative to gilts, houses were as expensive as they had been in the late 1980s. even without the intervention of the financial crisis you might have expected much weaker growth of purchase prices over the following few years, and that ’ s what happened. however, we should be careful not to extend this pattern too unthinkingly. the spread is currently relatively high – on this measure housing is unusually “ cheap ” compared with government bonds – and, taken at face value, would point to somewhat faster growth of house prices over the future. but perhaps this is justifiable. if you thought relatively weak economic growth was likely to persist over the next few years – and that ’ s all speeches are available online at www. bankofengland. co. uk / speeches certainly the consensus view