The government has just published its latest summary of short and long term independent economic forecasts for the UK. This is a summary of the longer term forecasts:
Let's summarise that. Growth is falling. RPI inflation will exceed growth, so real wages are likely to fall again. There will be more part time and low paid jobs. Our international trade position will remain dire. The deficit will fall but by no means as much as the Treasury suggests. It's all pretty grim.
Let's put that another way. Cameron says he can deliver tax cuts on the basis of a balanced budget in the next parliament. No one believes him. There is no way it will happen.
No wonder people don't trust politicians.
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Richard
I don’t know very much about these sorts of statistics so went to one of those ‘Dummies’ type websites where I found the following definition of GDP growth.
“….if the gross GDP was calculated to be 6% higher than the previous year, but inflation measured 2% over the same period, GDP growth would be reported as 4%, or the net growth over the period.”
Is the Treasury using a different than usual definition of GDP Growth? If it usuing the usual definition, it would mean that what you have said “RPI inflation will exceed growth” was not correct.
Could you clarify? I can supply the link to the “Dummies” website if you want to check.
Those are real GDP numbers, not nominal, so the comparison on RPI and GDP is irrelevant
Thanks,
That’s quite a depressing table, as it is 99 per cent certain that there will be tax cuts for middle income groups over the course of the next parliament if Osbourne and Cameron are reelected. And like this parliament, they will be offset by cuts to welfare recipients and the public sector.
The Capital Economics forecasts (https://www.capitaleconomics.com/key-forecasts.html) seem to be for real GDP, not nominal. I assume that the others are the same.
GDP growth is quoted as a real number – that is after inflation is taken into account. So inflation (on either measure) will be less than GDP growth.
There are two rates of inflation noted
It is not net of both
Which was my point, if imperfectly made
And all Timmy Boy’s followers came along to echo their master
Sorry, I don’t follow your point then?
CPI is the ONS preferred measure of inflation, as it is has a more robust calculation method (RPI will overstate inflation due to how it is calculated, as well has having a differing constituents).
If I add the growth numbers to the CPI number in your table to get nominal growth, 100 (at the start of 2014) will have grown to 123.9 by the end of 2018.
RPI over the same period will take that 100 to 115.6.
So even if I take out the use of CPI, and use RPI instead we still have positive growth. I do not see how “RPI inflation will exceed growth”.
RPI is my preferred measure of inflation: it states likely household costs
RPI is greater than CPI
CPI is used to adjust nominal GDP
The net margin is that growth when adjusted for RPI is 1% or so at best, which we know ha not been enough of late to create real wage growth (last month’s data is the result of oil price changes)
So, real wages are likely to still fall, as I said
No: I didn’t spell out all the steps for those of a pedantic nature who have decided to turn up here in droves, as has Worstall himself who no doubt drove the rest
But, my logic is entirely right
I accept that you need to have some forecasts, but the inflation figures look highly suspect to me given that Europe appears to be teetering on the blink of inflation and we have already had a couple of years where interest rate rises were supposed to happen and didn’t.
It looks to me that they decided long term GDP growth is around 2.3%, CPI around 2% and RPI around 3% and just stuck those in for the 2017 and 2018 figures. I suspect the truth is that something fundamental has changed since 2007/8 and it will take a long time to work out the repercussions.
You are right: detailed forecasts only tend to work for two years, then they tend to long term norms
Hence the forecasts
Sorry, meant to put Europe on brink of deflation, obviously!
Sorry Richard I am now more confused not less.
I can see that there are two rates of inflation but even if the GDP figure is after netting off the LOWER of the two inflation rates then it would be GDP gross increases of
4.6, 4.1, 4.4, 4.4, 4.4
Which is higher than the HIGHER inflation rate figures of
2.5, 2.4, 3.2, 3.4, 3.2
I can’t find anything on that ‘Dummies’ website about the effects of different measures of inflation so maybe that is the bit of the puzzle I am missing?
Can you help?
Even if there was 1% real growth we have seen that this results in real wage falls
That’s because of the concentration of growth in the hands of a few and increasing population
In other words, what I said was exactly right and the conclusion reached 100% valid
Richard: You’re original text says “Growth is falling. RPI inflation will exceed growth, **so** real wages are likely to fall”. You can’t then redefine your terms to mean “Growth is rising, but not by more than 1% over RPI, **so** real wages are likely to fall”
Yes I can
I did. It wasn’t my most elegant piece of writing – but post op I am dedicating little time to this blog (and comments like this make me realise why)
And in the context of a blog I was entirely right to do put the argument I did
And what is more – the conclusion was wholly correct
If you don’t like it that’s your problem. I’m sure Tim Worstall will be quite happy to share your grief
Richard. The weak dogs are chewing at the edges. Please don’t waste your recovery time on these idiots.
Thanks
Richard,
Commenting on the blog itself, and not the pedantic musings of the 1% commenters, one can see precisely the point being made and agreement is self evident. Lacking your expertise, I am a mere casual observer of issues economic. You have succinctly laid out what we know and feel to be true, real wages are falling. Full stop.
The view presented in the blog is that of 30,000 feet (as they say), this allows us to see the entire forest vs. the pedantic tree or two. The sole purpose of economic activity, research and thought is to serve society. This blog helps to keep that focus on track. Arguing, as your pedantic commenters seem to want, about the difference between .000001% and .0000001% serves no purpose. Research, such as this blog, should maintain its focus on what we know and feel should be economic policy, not some .0000000001% trivia.
We are talking about the health of society here, not activity that may or may not be happening on the margins. Margins which are irrelevant anyway.
Keep up the stellar work Richard.
Thanks
“Issues economic” indeed. I bet you wear sandals and knit your own yogurt.
I let this one through James
Andrew K was formerly an adviser to a UKIP MEP
I think we occasionally need to see the mentality, tone and inclination of those we are up against
This was one of his mild offerings – which are usually almost invariably deleted
It confounds me why the attack dogs are out and about on your post today when plenty of other blogs and news sources are corroborating the facts you present. It’s as if you were the only person highlighting this when in fact all you have done is present a deeper analysis of an issue that is widely reported.
I believe that Camekazi will indeed deliver tax cuts because he and his party simply don’t care. They’re into economic suicide because of course it will be others who suffer.
They also know how to bribe the electorate.
In the meantime, they will let people dip into their pension pots so we can expect another artificial and very short boom. The modern Tory has previous on this – Lawson produced tax cuts just as the country could have done with more investment. I hate to say it but I think they will still cut taxes Richard to try to stave of the UKIP effect and also put to death any lingering hope that Labour will threaten them.
These numbers do not take into account of the new recession caused by the planned cut in government spending. But of cause they believe a cut in government spending will cause growth in the private sector.
What could have been a bad week was turned around when a Good Samaritan pointed me towards this inspirational blog.
It’s hard to be a caring person in dystopian, Coalition Britain. Sometimes I wish I was neo-liberal too, no not for the money (I’ll take the beauty of Gaia over a new BMW thank you), but because if I didn’t care, then the pain would go away.
Then I find this blog, both laser accurate and yet so inspirational – a rare combination! – and a little of the spring is back in my step.
Yes, the trolls on this thread are depressing, but how glorious to see them so witheringly dismissed!
It’s clear Simon’s blog is a real find