Author: DIANE COYLE
The OECD is just one of many economic forecasters. Each month the Treasury publishes a summary of 42 sets of forecasts from public, private and academic organisations. As the selection in the table shows, the OECD is more optimistic about growth this year and next than many other institutions.
Its forecast for Britain is supervised by a Canadian economist, the theory being that a foreign national will be less vulnerable than a Briton to arm-twisting by the Treasury.
A preliminary report is discussed with Government officials, then there are, as the OECD puts it, “revisions in the light of discussions”. To be fair, it likes to hint at its views if they genuinely differ from those of the Government, but it shies away from embarrassing one of its bigger paymasters by publishing a hostile assessment.
As it happens, though, there has been little disagreement. The OECD’s economists are huge fans of deregulation, free markets and the type of structural reform of the labour market that has gone further in Britain under the present Government than in most other member countries. Given their ideology, they want to believe that these policies will be rewarded by faster growth and lower inflation than in the past.
The organisation’s only faint worry is about the temptation for the Government to give way on inflation or public spending in the run-up to the next election. It relegated to a footnote the observation that: “A novelty in this recovery is the sharp break in ‘house price inflation’ – with benefits for the overall economy.”
The other international organisation to publish a forecast for Britain is the International Monetary Fund. The forecast is shown to the Government for comment, but the IMF does not publish its detailed annual reports on member countries. The only occasions for conflict arise when the IMF is intervening – something that has not happened in Britain since 1976. Its forecasts are generally fairly conventional.
Other groups of economic forecasters bring different biases to their predictions. For example, Liverpool University’s forecast is based on the assumption that there is a huge amount of spare capacity in the economy. This leads it to the conclusion that there is no inflation risk in the next 18 months.
The figures predicted for key economic indicators in the end vary far less than the interpretations that are put upon them.
According to the Treasury’s summary, GDP growth forecasts this year range from 2.4 to 4.0 per cent – both extremes from City economists with an incentive to stand out from the crowd. The non-City range is a narrower 2.6 to 3.5 per cent. Given the uncertainties in economic forecasting, that boils down to “around 3 per cent”.
Slower than last year, a bit faster than next, with inflation well under control if not actually on target – it is not a gloomy forecast, but not as relentlessly upbeat as the OECD’s recent assessment.
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