From the TUC

The OBR forecasts a ‘lost decade’ for the UK

07 Dec 2012, by in Economics

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.

The Telegraph reported:

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%.

To reuse an old Paul Krugman quote:

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.

13 Responses to The OBR forecasts a ‘lost decade’ for the UK

  1. jonathan
    Dec 7th 2012, 4:22 pm

    If it weren’t for the human cost, it would be fascinating. I’m reminded of the comment attributed to Robert E. Lee while watching the slaughter at Fredericksburg: “It is well that war is so terrible, or we should grow too fond of it.”

    I was reading The Economist yesterday and saw they noted the OBR forecast. It was only a few years ago they were beating the drum for austerity and for Cameron’s plans. Perhaps they should allow humility to penetrate their perpetual facade of all knowing correctness.

    And in the US, we’re facing what the right wing, including the rational ones, were urging. David Brooks wrote a column calling for Obama to “do a Cameron”. Every day I saw praise for austerity and lots of hype for studies which could be used to back it. The austerity boat was full of name brand economists. And now the call is dodge the very course we were pushed toward. Our so-called fiscal cliff mimics much of Britain’s action: tax increases and cuts in spending, with very heavy reductions in public investment. The US would cut more social spending, but then this is not the moment of crisis.

  2. Larry Sportello
    Dec 7th 2012, 5:20 pm

    Unfortunately it’s probably going to be a lost century. The illusory gains from the financial sector – now sold to us as an output gap – no, our productivity is likely to fall further still. Years ago the UK started looking like it would have a strategy to build on its strengths in science, technology and business services; now it is a backwater for low wage zombie companies who want to repeal employment legislation so that they can hire a few more people to do soul destroying work – or indeed just get them to work for free. The OBR’s confidence in an economic bounce back is comical. Where is this going to come from? All that declining real terms investment in HE research?

  3. Chris Routledge
    Dec 7th 2012, 5:50 pm

    Part of the reason many people don’t see this case is that we still have the infrastructure of a much wealthier nation. Also, if you did well in the last decade you probably still have the physical fruits of that–the flat screen TVs, fitted kitchens etc. Those things take time to decay, but decay they will. In that sense the economic arguments may seem more abstract than they actually are, though not if you are actually struggling with food, rent, and heat.

  4. Andrew
    Dec 7th 2012, 7:09 pm

    The problem is not lack of growth. Ignoring, for the moment, all the problems of GDP as a measure of human progress (which are many, see Declan diddly-squat on the BBC for a really poor, but digestible, idea about this) then the rule of 72 says that even, yes, even 1% annual growth results in doubled incomes every,er, 72 years. Over human history, over time, that is an ample rate of growth. if Zambia (GDP per capita US$200, Switzerland, GDP Per Capita US$50,000) grows at 1.5% pa and Switzerland at 1.1% then Zambia will overtake Switzerland, in AD7588. Is that really so far away, even in terrestrial time (income in both will be US$64 trillion trillion thousand that year….). the problem is not growth it is economic justice and economic sense.

    Henry George – Progress & Poverty. Steve Keen – Debunking Economics.

    Hey Declan, are you going to top yourself like that nurse? Just pick up the salary.

  5. Andrew
    Dec 7th 2012, 7:20 pm

    oh my god. I made a mistake. Citizens (peasants?) of Zambia the promised land will come sooner. At those rates of growth you sill be as rich as Switzerland (per capita) in AD 3,131,A mere 1,119 years from now. Geez, you could almost even make plans.

  6. gastro george
    Dec 7th 2012, 7:23 pm

    And you could see fatalism as yet another tactic – it’s something that is spreading (and is designed to spread) to liberal journalists who should know better.

  7. Andrew
    Dec 7th 2012, 8:58 pm

    #gastro george, I don’t think your comment was aimed at me, but whether it was or not my reaction is, huh? What the ***k are you talking about?

  8. Andrew
    Dec 7th 2012, 10:25 pm

    oh, gdp per capita in Zambia and Switzerland in 3,3131 AD (will it still be by then…..) at those rates of growth will be a mere US$3.4bn per capita. Yeah, I know, why get out of bed.

  9. Andrew
    Dec 7th 2012, 10:32 pm

    sorry, gastro george,I see what you mean….. so the answer is……..

    Henry George – Progress & Poverty, Steve Keem – Debunking Economics.

  10. gastro george
    Dec 7th 2012, 10:54 pm

    @Andrew No, my comment was aimed at idiots like Suzanne Moore. I see a trend for some liberal media commentators to accept the “inevitable decline” meme.

  11. John
    Dec 8th 2012, 2:50 am

    This is a very good article Duncan Weldon on this serious subject, but sadly soilt by some very silly juvenile [& in one case offending]comments.

  12. Sarah
    Dec 8th 2012, 10:27 am

    @ gastro george I would hardly describe Suzanne Moore as an idiot – at least not based on that Guardian piece. She highlights many of the critical issues facing our society primarily whether our accepted model of economic ‘growth’ is sustainable – many of us think not – and that we need to engage in a serious discussion about how that model needs to change to ensure the future of our planet. I use the word ‘planet’ in its widest sense and not only as regards the environmental question.

  13. gastro george
    Dec 8th 2012, 10:45 am

    @Sarah Maybe not the best choice of examples, but just the latest in a lengthening train of them. Nor the best choice of words (in pathetic defence, post-pub) – I’m an normally an admirer of Moore, especially on social issues.

    But I think Moore gets confused about what growth actually means. It is, after all, at its most basic, the sum of human activity, and it doesn’t by definition require the use of more physical resources. At a time when there are many people who could do with the effective use of more human activity, it’s a bit strange to be arguing that we should do less.

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