The reaction in the press to this week’s Autumn Statement has mainly – and for very understandable reasons – focussed on the Chancellor’s policy announcements, in particular the real terms cut in working age benefits. What have got a lot less attention are the growth forecasts – which are simply awful.
Compared to the last Autumn Statement, growth has been heavily revised down.
As the chart below demonstrates – this time last year the OBR expected growth over 2012 to 2016 to be 12%, whereas it now expects just 8.3% – almost a third lower.
But what is striking is that the OBR has just lopped a third off forecasts that where already bleak.
After the last Autumn Statement the FT’s Chris Giles wrote that:
It is about as bad as it could get. When George Osborne, the chancellor, was presented with the draft forecasts a month ago, he must have felt a cold sweat.
Annual growth forecasts were revised down sharply out to 2014. Growth this year is now expected to be just 0.9pc, compared with the OBR’s March Budget forecast of 1.7pc growth
Whilst the Guardian noted that:
The changes to the growth figures in the short-term are eye-wateringly bleak, with the OBR now predicting that Britain will expand by just 0.7% in 2012 (down from 2.5% in the March forecasts).
It is worth stepping back for a moment here and looking at the longer-term picture. One year ago the OBR gave forecasts that were variously described as “about as bad as it could get”, “revised won sharply” and “bleak”. It has just taken those forecasts and revised them down by a further third.
Occasionally a commentator will warn that the UK might face a Japanese style ‘lost decade’, this is no longer a risk – it is the government’s own forecaster’s base case.
The chart below compares UK growth from 2008 to 2017 (2012 to 2017 being the new OBR forecasts) to Japanese growth from 1991 to 2000.
During its own ‘lost decade’ the Japanese economy grew by 11.9%, a disastrous result over 10 years. The central forecast of the OBR is now that UK growth, over the decade of 2008 to 2017, will have been 8.7%.
The slowness with which Japan’s economy deteriorated was in itself a source of much confusion. Because the depression crept up on the country, there was never a moment at which the public clamoured for the government to do something dramatic. Because Japan’s economic engine gradually lost power rather than coming to a screeching halt, the government itself consistently defined success down, regarding the economy’s continuing growth as a vindication of its policies even though that growth was well short of what could and should have been achieved. And at the same time, both Japanese and foreign analysts tended to assume that because the economy grew so slowly for so long, it couldn’t grow any faster.
So Japan’s economic policies were marked by an odd combination of smugness and fatalism – and by a noticeable unwillingness to think hard about how things could have gone so wrong. (My emphasis)
We’re half way through our own lost decade and the government exhibiting the same behaviour that marked Japan’s – consistently defining down success and seeing any growth as a vindication of its policy even though growth is well short of what it could and should have achieved.