From the TUC

New Forecasts: The Good, the Bad & the Frankly Terrible

05 Dec 2013, by Guest in Economics

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.

The Good

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.

GDP dec 2013

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.

The Bad

After the March budget, I looked at the forecast and said the government had given up on rebalancing. If the OBR killed hopes of rebalancing back in March then today they buried it.

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.

The Terrible

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.

4 Responses to New Forecasts: The Good, the Bad & the Frankly Terrible

  1. Giving up on rebalancing | ToUChstone blog: A public policy blog from the TUC
    Dec 5th 2013, 2:10 pm

    […] I’ve already blogged that the OBR seems to have given up on rebalancing in its forecasts. A quick look at the Chancellor’s Statement suggest he has to. […]

  2. Benjamin Profane
    Dec 5th 2013, 2:32 pm

    Since the early 2000s, employer social contributions have increased, reducing the
    share of total employee compensation accounted for by earnings alone and driving a bigger wedge between the growth in compensation and the growth in earnings. The proportion of compensation that went to these non-wage benefits increased from 13.0% in 2000 to 17.3% in 2010. Between 2000 and 2010 these costs increased by over 50% in real terms.

  3. Andrew Sherwood
    Dec 6th 2013, 5:07 pm

    Benjamin Profane
    Why start at year 2000, during the nineties most employers reduced any pension contributions – having a pension holiday, one reason why there are black holes in occupational pension schemes. Who picks the bill up with benefits, the state and ordinary people yet again.
    Earnings and compensation has grown since the early 1980s for the top 1% of earners disproportionately to everyone else in the country.
    As usual Duncan Weldon exposes the myths being perpetrated by politicians, trying to pull the wool over our eyes.

  4. Postkey
    Dec 7th 2013, 8:57 am

    “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.”

    It is grim if this survey is correct?

    “British consumer confidence dropped for the second consecutive month as households continued to worry about their levels of debt.
    According to the monthly consumer index survey from market research company GfK, confidence fell from -12 to -11 in October {2013}, surprising analysts who had expected a reading of -10.
    The findings of the survey showed that British consumers were still anxious about their finances and uncertain about the direction of Britain’s economy. Wages have not kept pace with inflation since the financial crisis began with inflation frequently above the Bank of England’s 2% target.”