New Forecasts: The Good, the Bad & the Frankly Terrible
The new OBR forecasts were meant to be a triumph for the Chancellor and listening to his statement one rather assumed they contained mainly good news. Sadly a quick look at the detailed OBR report quickly dispels this notion.
My first thought is that the new forecast can be divided into the good (ish), the bad and the frankly terrible.
Taking the good, or at least the better, first. Growth has been revised up – although not as much as much as many were expecting. Despite better headline growth the recovery remains widely off track as the chart below (which compares the new numbers to the first forecast) reveals.
Despite some more optimism from the OBR the overall size of the economy is by 2015 will be roughly what it was expected to be by 2013. We’re two years off course.
Growth has been revised up but business investment growth has been revised down for 2013 and 2014 (by -7.4% and -1.0%) and only slightly revised up for 2016 and 2017 (both a mere 0.1% and 0.3%).
Net trade is expected to be weaker in every year of the forecast.
Over the next five years net trade and business investment are now expected to contribute only around 20% of all GDP growth – down from around 30% in March and over 50% in 2010.
The OBR expects no serious rebalancing to occur.
Terrible is the only word that can describe the new average earning forecasts.
Despite upwards revisions to GDP growth and employment, the average earnings growth forecast have been revised down for 2014, 2015, 2016 and 2017.
The economy is picking up but this is not filtering down to pay packets. The cost of living crisis rumbles on and looks set to get worse.
Putting it all together – we have a recovery even more dependent on consumption with wages even weaker than expected. This is a truly grim forecast.