Suspect forecasts

Despite numerous forecasting clangers in recent times, the UK’s OBR (Office for Budget Responsibility) claims British productivity in the last decade has hardly grown at all and will remain sluggish over the next five years

  • They had assumed, when advising the Chancellor, that it would return to trend after 2008
  • They have now decided to abandon this and forecast a reduced productivity growth rate averaging only 0.7% per annum from now (2018) up to 2023
  • This wipes out the £26 billion budget ‘wriggle room’ and any tax give-aways for the public

This led the Financial Times to comment that the forecasts emanating from the OBR:

  • Look suspiciously like a wild stab in the dark
  • Include a big error every time

This is serious stuff, for the OBR’s forecasts are used not only by the government to make big decisions affecting us all but also leading UK think-tanks who influence those decisions

For example, the IFS (Institute for Fiscal Studies) uses them to predict “two decades of no earnings growth and more austerity” i.e. gloom and doom for the next 20 years!

But take heart

All forecasts have error margins – some are much bigger than others – and, at the macro level, they’re usually much bigger than most

Extracts from a ‘feet on ground’ article in The Times by Iain Martin should cheer up readers:

  • The economic forecasting/ think tank sector has experienced exponential growth in recent decades
  • However, the British government has put excessive faith in the projections of the OBR and ONS (Office for National Statistics) which has warped public policy for too long
  • Economies only really grow when entrepreneurs are liberated and supported to create new businesses that will develop in ways that nobody – repeat nobody – can predict
  • UK Prime Minister Gordon Brown’s fetish for long term projections turned out to be as useful as a chocolate teapot
  • Michael Portillo, when Chief Secretary to the Treasury, struggled to get from officials what happened last year, let alone what would happen five years ahead
  • Had Nigel Lawson, Chancellor of the Exchequer, offered five year forecasts in his 1989 budget, he would have missed:
    • The fall of the Berlin wall
    • The end of Communism
    • The first Gulf War
    • A harsh recession
    • The arrival of the Internet
    • Britain’s expulsion from the ERM – Exchange Rate Mechanism
  • So one must question how the OBR dares to predict five years ahead with any confidence
  • Current falls in growth predictions, from 2% to 1.5/ 1.3% are within their ‘margins for error’
  • To date, they’ve been consistently wrong yet their sacred numbers are avidly clung to, as if fact, by all the powerful and experts
  • So wrong in fact that we feel confident to predict their next forecasts will be equally unreliable

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