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IMF downgrades UK growth forecast

Almost all economic forecasts are bunk...

Almost all economic forecasts are bunk. That is, if you are looking for precise forecasts of the future. The fact that the IMF has revised down its UK growth projections by less than half a percent is not that important - it could just as well revise them up again in the autumn. It is just not possible to accurately forecast the future on a consistent basis. That applies to figures from the Office for Budget Responsibility too: we have seen there that changing underlying assumptions can make a big difference. The Bank of England, with all its intelligence, keeps getting its inflation forecasts wrong and missing its target. Uncertainty also applies to the actual GDP data we get from the Office of National Statistics: it can take years of revisions before we really know what happened.

What we should look for is general evidence of how the economy is trending. It looks as if the second quarter saw some strength but that now there is more uncertainty in business, while the supply of credit remains constrained. Moreover, there are real risks into next year if confidence in the future does not improve and governments such as ours aggressively cut spending. At the moment, the cult of austerity reigns. This government is risking hundreds of thousands of jobs on this political and economic philosophy.

This article was first published on the Progress website on 9 July 2010.

Progress, 9 July 2010, 12/07/2010

 
Not an easy task given uncertainties, especially if energy and commodity prices do fall later in the year. Ultimately, radical economic reform required.
Central banks are struggling to head off general inflation while dealing with price shocks that will be negative for growth. They waited too long, which has made their tasks more difficult.
The Bank of England has raised interest rates, but that does not mean it has been most effectively managing inflation risks.
The Bank should signal it will act if higher prices look likely to translate to higher inflation rate.
The IMF's Fiscal Monitor is actually quite radical.
Spare a thought for finance ministers, and the opposition counterparts who aspire to replace them. The conventional wisdom was that they should at least make an attempt to follow fiscal rules. Now, there are no rules.
My letter in the Financial Times on the need for a framework for economic policy decision-making.
Responding to Brian Griffiths' article in The Article on the risks of inflation.