OBR and Financial Forecasts

[ROSM]

Very surprised not to see a thread on this yet given the number of closet economists on NSC but the report from the independent body set up by the Conservatives last year and now in charge of government forecasting makes interesting reading;

BBC News - Fiscal watchdog downgrades UK growth forecast

So what do people think? maybe too early to tell and will need to see a few of these but despite the lower than predicted growth but also lower than predicted borrowing it does seem that there aren't the shocks and surprises and buried bodies that we've been hearing about for the last few weeks.

There are many positives for Darling to take from this;

- similar timeline to clear deficit between his and the new forecasts,
- no expected double dip based on his proposals (which is how these figures have been calculated - the government plans wont take effect until after the mergency budget elements are factored in)
- no long term damage to economy
- expected return to UK historical growth figure of 2.5%
- stronger recovery than eurozone and US predicted

So if we do see a double dip or reduction in growth will this be firmly the fault of the new government? To succeed now Osborne will need to cut the deficit quicker and improve growth quicker than this forecast predicts. Anything else would be seen as a failure?

 

[sten_super]

I don't think there's anything particularly unexpected in there. The Treasury forecasts always (even at the time of publication) looked wildly optimistic, although the borrowing forecasts were always based on a lower expected level of economic growth (in which case the question arises, why bother publishing proper forecasts?).

In answer to a few of your points;
This report is using Darling's budget, so it's no surprise that the overall timeline works out the same.
The double dip would never (at least, not unless there was a truly spectacular f up) show in the annual figures. Any double dip would only appear in quarterly figures, which Treasury forecasts don't publish.
What do you mean by no long term damage? The new report estimates that by 2015 the economy will have lost 8¾ percentage points of potential growth that it would have had had it not been for the financial crisis and recession.

This does clearly set out Osbourne's task; by 2015 he either has to have the public finances in better order than this forecast sets out or have engendered faster growth; preferably both. I don't think that both is a requirement though.

I must say I don't like these fan charts; surely it's obvious that any forecast contains uncertainty? Is it really necessary to quantify this? One great line in the report says that there is an 80% chance of their GDP forecast for 2010 being correct to within 1 percentage point; i.e. somewhere between ¼% and 2¼%. No shit.

 

[ROSM]

Well the Chair (Budd) himself has said he doesn't believe there is any long term damage. Also the potential loss is based on some unreasonably high forecasts that took place before the crisis. In effect saying that I think I may win 100k next year and then finding I've lost 20k doesn't mean a loss of
120k in real terms.

I suppose the point I'm making is that the Prime Minister spent much of last week sounding like a car mechanic by taking a sharp intake of breath and saying 'ooh some cowboy's had a go at this. It's gonna cost yer' only to find that whilst the 'cowboy' may not have been as good at his job, he certainly isn't as bad as has been painted and in fact was correct in expected outcome of his proposed treatment.

This actually bears out the Insititute of Fiscal Studies comments pre the last election that said whilst you may challenge and dislike the (then) governments proposals for the economy, they did at least stack up. The question is will the current government's?

 

[bhafc99]

the Prime Minister spent much of last week sounding like a car mechanic by taking a sharp intake of breath and saying 'ooh some cowboy's had a go at this. It's gonna cost yer' only to find that whilst the 'cowboy' may not have been as good at his job, he certainly isn't as bad as has been painted and in fact was correct in expected outcome of his proposed treatment.

Yup. And last week my company took the snap decision (made over a weekend) to make six of us redundant because 'there was no sign of things getting better".

Great.