The new independent UK Office for Budget Responsibility (OBR) has forecast that growth will be slower than the previous government had forecast, while debt and the budget deficit will not be as bad. So, no doubt, both the current coalition and Labour can make political capital out of that and there’ll be a huge amount of resource dedicated, by both the government and the opposition, to press interviews and PR spin to ensure that their interpretation of these forecasts is covered in the media.
In fact, the media is already reporting the OBR’s “mid point” forecast of 2.6% growth in 2011 as if it is in some way the definitive number. In reality, OBR point out that there is a great deal of uncertainty in their forecasts. They say “there is a 40% chance that the UK economy will grow by between 1.5% and 3.5% in 2011″.
Three points emerge from this.  Firstly, why does the media have to report a single figure when the OBR has gone to great pains to produce a range and indicate the uncertainty? Isn’t that irresponsible reporting and, for those business owners who might base their future plans on economic forecasts, slightly misleading?
Secondly, if OBR is only 40% certain that the economy will grow by betweeen 1.5% and 3.5% in 2011, that means that there’s a 60% chance that it won’t. So, that’s less certain than calling heads or tails correctly on the toss of a coin!  Now, call me a cynic, but I reckon most of us could come up with a forecast that’s no more certain than tossing a coin.
Thirdly, with such degrees of uncertainty even just one year out, the forecasts for years beyond 2011 are bound to be even less certain. So, exactly how useful are these forecasts to business owners having to make real investment decisions? Or indeed to the ministers who will make decisions about government spending? You wouldn’t want to bet your business on them.
The OBR also say that the differences between their forecasts and those of the previous government are within the normal boundaries of uncertainty. So, one wonders what all the fuss is about.
And, at a time when the government is looking to make public spending cuts, is it really worth spending more taxpayers money on setting up another quango which simply repeats work done by the Treasury and produces forecasts that are of doubtful use?
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