Posted: Mar 14, 2018 7:30 am
minininja wrote:Tracer Tong wrote:Pretty positive economic news today.
It's almost as though George Osborne was fibbing, or something. And I always thought him so reputable and honest.
Yeah if you believe what Hammond says.
And you know a lot of what was predicted did happen don't you? The Pound dropped by 15%. The Bank of England took measures to prevent recession. They cut the base rate to 0.25% and pumped billions more into the economy through QE.
That wasn't what was predicted. The predictions were of rising unemployment, an immediate recession following the vote and the need for immediate, severe fiscal action. Yeah, they got some minor details right, but unless we engage with the Texas sharpshooter fallacy, that hardly seems significant. Make enough predictions and you're bound to get *something* right.
Reproducing the table From Tracer Tong's link:
- Code: Select all
Immediate impact of a vote to leave the EU on the UK (% difference from base level unless specified otherwise)
Shock scenario (1) Severe shock scenario (1)
GDP -3.6% -6.0%
CPI inflation rate (percentage points) +2.3 +2.7
Unemployment rate (percentage points) +1.6 +2.4
Unemployment (level) +520,000 +820,000
Average real wages -2.8% -4.0%
House prices -10% -18%
Sterling exchange rate index -12% -15%
Public sector net borrowing (£ billion) (2) +£24 billion +£39 billion
(1) Peak impact over two years. Unemployment level rounded to the nearest 10,000. (2) Fiscal year 2017-18.
Taking them in turn
- GDP has grown by 1.9% in 2016 and 1.8% in 2017. This is roughly in line with pre-vote forecasts (or just trends) and nowhere near 3.6% or 6% lower than previous forecasts.
- Inflation has risen from 0.5% at the time of the vote to 3% now, a total of +2.5%. You can call this a win for the forecasters, but it's worth bearing in mind that the inflation target is 2%, and we are now closer to that than we were before the vote.
- Unemployment has fallen from 5% to 4.4%, that's a 0.6% move in the opposite direction to the forecasts.
- Average Real Wages have fallen from an index of 101.5 to 101.1, a drop of 0.39% and nowhere near the forecast of 2.8% to 4%.
- UK wide house prices have risen from £212,887 to £226,756 an increase of 6.5%, nowhere near forecasts of a decrease of 10% to 18%.
- Sterling to Dollar exchange rate has fallen from a pre-vote peak of 1.49036 to 1.39783 a 6.2% drop, markedly short of the forecast.
- Sterling to Euro exchange rate has fallen from a pre-vote peak of 1.30999 to 1.12742 a 13.9% drop and within the range of the forecasts, another win for the forecasters.
- The Exchange Rate Index has fallen from 86.6711 to 78.9604 an 8.9% drop, noticeably short of the target range of 12% to 15% - albeit the trough value of the drop to 74.7185 represents a 13.8% drop and lies within the range, making this a win for the forecasters.
- Public Sector Net Borrowing dramatically fell compared to forecasts, let alone increased by £24 to £39 billion.
The report itself also made clear its attitude towards the short term forecasts:
https://www.gov.uk/government/uploads/s ... eu_web.pdf wrote:There are significant downside risks which imply that the impact could be even larger. First, these scenarios do not allow for so-called ‘tipping points’, such as the crystallisation of financial stability risks. Nor do they incorporate the risk of a ‘sudden stop’ in financial inflows, reflecting concerns about the size of the current account deficit.
Nor has the impact of a sharp tightening of fiscal and monetary policy to restore credibility been modelled. In both scenarios monetary policy is held fixed. Fiscal policy is assumed to support the economy through the operation of the ‘automatic stab
ilisers’. The analysis does not make any assumption about what policy decisions might be taken to contain the resulting increase in borrowing, but these would need to be significant as net government borrowing would increase by around £24 billion in the shock scenario, and by around £39 billion in the severe shock scenario, compared with a vote to remain.
Moreover, if negotiations took longer than two years to conclude, or if the outcome were to be less favourable than expected, the UK economy could be subject to repeated and persistent rises in uncertainty which would depress further economic prospects.
So in summary, of the 7 headline predictions (I am counting the two unemployment predictions as one as they are the same conclusion formulated in different ways) they got 2 out of 7 correct and could hardly have been more wrong on the other 5, of which 3 moved in the opposite direction. The two they got correct were the least significant to ordinary people's lives, with both being changes that can't even be categorised as negative (lower exchange rates aid exports and harm imports, higher exchange rates aid imports and harm exports; inflation aids borrowers and hurts lenders, so exceeding the 2% target creates a similar number of winners and losers to falling short of it).
I do notice that the forecast has massively underperformed the benchmark I set yesterday of just predicting that current trends continue.
Edit: Re: London House prices. The Treasury report does not mention them, they made no prediction on this front, but the fall has been widely attributed to the policy change on stamp duty (on top end houses, not the more recent allowance for first time buyers) and on market overheating and not Brexit anyway.