MacroScope

UK’s independent forecaster takes a reality check

December 6, 2012

An unusual thing happened on Wednesday amidst all the shouting over British finance minister George Osborne’s autumn budget update which, depending on who you asked, outlined an increasingly dire or healthy state of the UK economy.

On the very near-term economic  outlook at least, officialdom actually sounded more pessimistic than most of even its harshest critics.

Britain’s independent Office for Budget Responsibility said it expects the UK economy will contract in the period ending this month by 0.1 percent — a gloomier forecast than the consensus of economists polled by Reuters, for 0.1 percent growth.

That’s strange because since its 2010 inception, the OBR has been wildly overoptimistic about the UK economy. In June 2010, the OBR thought it would be growing 2.8 percent by now.

Only nine out of 32 economists polled by Reuters last month thought the economy would shrink this quarter. That puts the OBR at the pessimistic end of the range of forecasts. And the OBR is now forecasting the economy will grow just 1.2 percent in 2013 — very close to the 1.1 percent consensus in the poll.

It’s hardly controversial to say official forecast bodies, even ones supposedly independent of the government like the OBR, usually sugar-coat their outlooks.

The fact the OBR is no longer doing so is a fairly stark sign that good times for Britain’ s economy really are a long way off.

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