50bps of Grey

Underestimated GDP?

An ONS survey supports our view that real GDP is underestimated by around 50bp as people refuse to declare 'grey' / 'sharing' economy earnings, such as sub-letting accommodation.

Four out of five households admit to paying cash-in-hand to tradesman and a recent survey by the ONS suggests people involved in the ‘sharing’ economy don’t like reporting their earnings either.

Respondents were unwilling to give information

The ONS was investigating the size and shape of the sharing economy. When it asked people about earnings generated from the sharing economy:

Others, who had received money from providing sharing economy services, had mixed reactions to this question. Some respondents were willing to provide responses and explained how they would calculate their estimates, but some respondents refused and warned others who were willing to answer to be careful. Respondents were unwilling to give information if they were, for example, sub-letting accommodation or offering skills and accommodation that was not part of a declared business. Other respondents stated that there was no incentive for them to answer these questions.

This supports our (and Professor Sir Charlie Bean’s) analysis (as detailed in our latest Fundamentals piece Bean Counter) that economic growth is underreported by around 50-75bp and that we should put more emphasis on the strong jobs growth. We think productivity is holding up better than feared, which is good news for equities as productivity is the long-run driver of company earnings.


For a more detailed discussion of the impact on equities, see Chris' Fundamentals piece "CPI of the Beholder".