MacroScope

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.

Anyone involved in financial markets on a day-to-day basis will be familiar with bits of jargon like “breaking the psychological barrier”, “passing key resistance levels,” and even “magic numbers”.

While academics might argue if such things exist, market players put a lot of weight (and money) on the way certain financial instruments, indexes and currencies seem to behave near a certain number – usually a round figure.

Economists, looking months and years into the future to predict the path of entire economies, could well declare themselves immune to the superstitions of daily market movements.

The outlook for the UK housing market has darkened again. The usually optimistic bunch of property market watchers polled by Reuters, who have tended to predict ever-rising property prices no matter what the season or financial climate, now say the market will move sideways for the next two years.

They say that in the next few months, the small double-dip in prices that has begun will continue. Modest gains predicted less than three months ago for this year and next essentially have been wiped away.

No one should be surprised by this.  It smacks of an awakening to reality more than a slight change to a few variables in the statistical model. What’s perhaps most striking about these new poll results is that economists think houses are even more overvalued now than they were in July even after a few straight months of falls.

Japan may well have looked like the odd-one-out after Monday’s news its economy grew 0.1 percent over the second quarter – about the feeblest expansion possible.

Europe’s big players were already in full swagger after posting growth second quarter growth that often exceeded predictions, and the U.S. economy – although clearly slowing – still expanded at a decent pace over the same period.

But looks are deceptive, especially from preliminary three-month snapshots of the rich-world economies, and Japan’s lethargy is probably still the rule, not the exception.

Sixties nostalgia was all the rage in the late 90s, and towards the end of the last decade we looked back only 20 years or so for a massive 80s revival in electronic pop and fashion.

With the 2010s in full flow, the current vogue of choice derives from just two years ago – at least among those noted trendsetters, economists.

Back in mid-2008, the signs for the UK economy were confusing and ominous. Inflation was too high, forward-looking indicators pointed to a slowdown of some sort in the near future, and the July minutes of the Bank of England’s monetary policy committee showed they debated both easing and tightening interest rate policy.

Ken Clarke shouldn’t underestimate how strongly the city economists polled by Reuters last week want to see him serve as Britain’s finance minister next term.

The Conservative shadow business secretary and one time ex-Chancellor gleaned a few laughs from Thursday’s BBC Question Time audience when asked about the poll, saying: “There’s a limit to how much of a glutton for punishment you’re going to be.”

But economists would dearly like to see the 69-year-old’s appetite for punishment return soon. No-one came close in the Reuters poll to touching Clarke for popularity. Some 16 out of 29 economists picked him as their first choice for Chancellor.

Bank of England Governor Mervyn King was on good form when he addressed the Royal Society – Britain’s oldest scientific discussion club – on the vexing issue of communicating complex forecasts to the great unwashed.

Aside from his usual moan about the media’s desire to reduce the BoE’s beautiful but baffling ‘fan charts’ of inflation forecasts to one or two numbers, he made a rare and welcome admission that in past years the central bank had not done as well as it could have to flag up the risk that a financial crisis was about to happen.

The BoE’s financial stability reports – like those from many other central banks – sometimes sounded as if they were crying wolf in the years running up to the credit crunch by warning of pretty much every risk to markets short of Martian invasion.