Growth forecasts and the Autumn Statement

One of the features of George Osborne’s Budgets and Autumn Statements has been a downgrading over time of forecasts for the economy by the Office for Budget Responsibility (OBR).  For example, both the 2010 and 2011 Budgets forecast GDP growth of 2.9% in 2013.  By the March 2013 Budget, this forecast had been cut to just 0.6%.  For 2014, the 2010 Budget forecast growth of 2.7%.  The 2013 Budget forecast growth of 1.8%.

This pattern looks set to change in next month’s Autumn Statement.  Independent forecasters currently expect growth of 1.4% this year and 2.3% in 2014.  There is, therefore, every chance that the OBR will revise up its forecasts for economic growth when the Autumn Statement is presented on 5 December.

Forecasts of 2013 GDP growth (2)

While the independent forecasts for growth in 2013 and 2014 are higher than those in this year’s Budget and the 2012 Autumn Statement, they remain below the growth rates forecast in all of the Coalition’s earlier Budgets and Autumn Statements.

Another way of looking at the same issue is to consider the cumulative growth in GDP between 2010 and 2014, as forecast in successive Budgets.  The 2010 and 2011 Budgets both forecast that GDP would be around 10% higher in real terms in 2014 compared with 2010.  By this year’s Budget, this had fallen to less than 4%.

Cumulative GDP growth 2010-14 (2)

This is because the economy grew much more slowly in 2011 and especially 2012 than initially forecast.  Growth was just 0.1% in 2012 compared with forecasts of over 2% in both the 2010 and 2011 Budgets.  Growth forecasts for later years have also been downgraded again leading to lower cumulative growth between 2010 and 2014.

Based on the latest, more optimistic, independent forecasts, the economy is predicted to be nearly 5% larger in 2014 than 2010.  While this represents an improvement on the forecasts in the 2013 Budget, it remains a worse outcome than forecast in the Coalition’s first three Budgets.

Author: Dominic Webb