I had a quick conversation with Duncan Weldon at the TUC who has done a lot of work on George Osborne's forecasts since the budget. As a result he put up the following blog at the TUC's Touchstone blog (which I recommend):
Since the Budget last week I've blogged a fair bit about the changing OBR forecasts and in particular their large downward revisions to their business investment forecasts.
However rather than focusing on just the recent changes it is worth taking a step back and looking at how these numbers have changed over a longer time period. The table below shows the OBR business investment forecasts over the past 20 months.
As can be seen, back in June 2010 the OBR expected business investment to grow by a very healthy 8.1% in 2011. By November of that year they had become even more bullish about the prospects for 2011 with growth revised up to 8.6%. Fast forward four months and the doubts begin to emerge, business investment growth for 2011 were downgraded to 6.7% in March 2011. By November the OBR actually expected it to fall and last week they nudged the 2011 forecast up a touch to 0.2%.
For what it's worth we got the figures for 2011 yesterday:
Business investment for the fourth quarter of 2011 was estimated to be 3.3 per cent lower than the previous quarter at £29.7 billion, but 1.6 per cent higher than the same period last year.
Growth of 1.6% over 2011 — a healthy beat of the OBR's most recent forecast of just 0.2% but well below what they expected this time last year, let alone the year before. Which goes to show — it is entirely possible that macroeconomic data can beat the OBR's most recent forecasts but this doesn't prove that it was good data.
What is striking, to me at least, about the OBR's investment forecasts is the way that they keep revising down the near term but continue to expect a boom in business investment is just around the corner. The graph below captures this:
The business investment boom was due to start in 2011, it was pushed back first to 2012 and then into 2013/14 but it remains in the forecasts.
Let's hope they're right.
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And with 88% of the cuts still to come, according to th e IFS, the two years round the corner story may well turn into three, four or more.
The figures for 2014,15&16 are just “balancing” figures. We need a parliamentary enquiry into the OBR.
One wonders what are the drivers for business investment in the minds of the Osborne, the OBR and the Treasury model other than the fairies. Surely, there must come a time when they start to see economics as a science rather than voodoo and they have to revise their theories as to how the UK economy works based upon the evidence available. There used to be a time, before Thatcher, when the Conservative Party believed in in pragmatism rather than the blind pursuit of doctrine.
On a positive note, in a bleary state when listening to the Today business slot at c6:20 this morning I did hear a business man talking about how the corporate sector surplus was a very serious problem that had to be addressed. The first cuckoo of Spring perhaps?
[…] wholly dependent on the assumption that if the government cuts then business will invest more. Duncan Weldon showed that is simply a myth always assumed to be two years in the future, yesterday. That will be as […]