Nowcasting for Policy and Service Delivery

Economic forecasting has long played a crucial role in government policy and strategy. By anticipating shifts in medium and long-term future economic conditions, traditional forecasting helps policy makers and analysts to prepare for potential changes in the economic environment, such as inflation rates, interest rates and employment levels. However, the rapidly changing economic landscape has led to the emergence of a more immediate approach - economic nowcasting. 

Nowcasting, a term derived from "now" and "forecasting," refers to the prediction of the present or very near future economic conditions. Unlike traditional forecasting, which often relies on historical data and longer-term projections, nowcasting focuses on providing timely insights by using current data and enables economists and governments to react more swiftly to economic changes as they happen. 

And nowcasting is gaining ground with economists and statisticians; for example, the Office for National Statistics (ONS) produces a weekly Economic activity and social change in the UK, real-time indicators bulletin and has worked with the Alan Turing Institute to overcome some of the mathematical challenges involved in nowcasting (e.g. collating data released at different frequencies and collected via different methods). 

What is the role of nowcasting in policy and service delivery? 

Nowcasting is not just a tool for prediction but a strategic advantage in navigating the complexities and uncertainties of the modern economy. 

Nowcasting can provide policy makers, analysts and service delivery organisations with the real-time insights that are essential for informed and responsive social and economic policy-making. In an era where economic conditions can shift rapidly in response to geopolitical events, timely information is more valuable than ever.

Nowcasting allows policymakers to gain a clearer picture of the current economic situation, enabling proactive rather than reactive policymaking. This responsiveness can help mitigate economic shocks more effectively, ensuring that interventions are both timely and targeted. 

Using financial data for nowcasting 

Near real-time de-identified consumer financial data can be an invaluable resource for nowcasting, as it can provide granular insights into current economic activities and trends. By analysing data such as spending patterns, savings rates, and credit usage, economists and analysts can gain a more immediate understanding of consumer behaviour, which is a critical component of the overall economic landscape. 

For instance, tracking digital banking activity can reveal how citizens are responding to economic stimuli such as changes in interest rates or government policies, uncovering shifts in purchasing power, income trends and SME productivity.  

Nowcasting in action 

To showcase the power of financial data for research and policy, Smart Data Foundry is launching two groundbreaking tools: 

• The Economic Wellbeing Explorer – A map-based platform that leverages both financial data and open data, providing users with a clearer understanding of economic wellbeing across the UK. It supports comparisons at national, regional, and local levels, highlighting key indicators such as financial resilience and spending behaviours. 

• Smart Data Foundry Economic Nowcast – A near real-time dashboard which will track key financial wellbeing indicators for consumers and small businesses, such as average income and business productivity.   

These solutions raise awareness of the power of financial data while empowering data-driven responses to economic challenges. 

What’s next for nowcasting? 

The integration of nowcasting into policy and service delivery represents a transformative shift in how governments and organisations respond to economic fluctuations. It equips policymakers, analysts, and service providers with the timely insights necessary for proactive decision-making, enhancing their ability to address economic challenges swiftly and effectively. 

As we continue to navigate the complexities of a rapidly evolving global economy, nowcasting stands as a crucial element in shaping more resilient and adaptive economic policies. Embracing nowcasting not only enhances our current understanding but also paves the way for innovative approaches to future economic decision-making to improve economic wellbeing for all.