Forecasting the unforecastable
When Philip Hammond moved the main Budget to the autumn we were told that the Spring Statement would be a much more low-key affair. There would be no photocall outside No 11 Downing Street; there would be no red box; there would be no policy statements on tax matters; and no rabbit out of a hat. It would simply be a short speech in which the Chancellor would update the House on the Office for Budget Responsibility forecasts.
Forecasting – now that’s a tricky one. We British are known the world over for our fixation on the weather and we – probably – have the best weather forecasters in the world. But how often do they get it right, or rather how often do we perceive them to have got it right? OK, when they tell us it will rain in the morning, the chances are it will, but when they tell us it’ll be fine next Friday afternoon… well, maybe you should prepare for snow. Forecasting just one week ahead is a pretty hard thing to do. So how is the Office for Budget Responsibility going to manage to forecast what GDP will be in four years’ time, (which, by the way, is the mandate set by George Osborne in 2010)?
The result of this difficulty is that we get constant upgrades, downgrades and reassessments and it makes one ponder if there is really any point to it. The Office for National Statistics produced the chart below showing the OBR’s March 2016 and November 2016 forecasts for GDP. The interesting point for me is not the difference between the March and November forecasts but the blue shaded area post 2016. This is their best estimate of the potential range of outcomes. So by 2021 the OBR confidently forecast that GDP will be somewhere between -1% and +4%. Without wishing to sound like a know-all, I think I could have come up with that prediction!
So back to the matter in hand, surprise, surprise, the OBR have upgraded their growth forecast for 2018 from 1.4% to 1.5%. Mr Hammond also told us that employment had increased by 3 million since 2010 and the unemployment rate is close to a 40-year low.
On borrowing, as has already been trailed, the OBR has revised its borrowing forecast down from £49.9bn to £45.2bn for 2017/18 and Mr Hammond said the deficit is £108bn lower than it was in 2010.
With some calling for him to ‘end austerity now’, Mr Hammond said he will increase public spending over the next few years if public finances continue on this improved path. There will be a detailed spending review in 2019 to decide spending on departments. So not now but soon(ish)…maybe.
The Government will bring forward the evaluation of business rates, currently due in 2022, to 2021, and on housing Mr Hammond announced an investment programme of £44bn to raise the housing supply to 300,000 a year by the mid-2020s. (Didn’t we already have that in the Autumn Budget?)
Plastic – the Government will have a consultation on plastic litter and is making a call for evidence on single use plastics, the supply chain, alternative materials and recycling opportunities.
A consultation will also be launched to look at how VAT is collected for online sales.
And that, folks, is it, bar a few other minor points. Frankly it was all just a bit boring and left me neither over- nor underwhelmed. I’m, well, whelmed I suppose. But one related issue has left me rather upset – that great, yet humble, king of British cuisine, the pork pie, has been removed from the basket of goods that inflation is measured by. The British are falling out of love with the pork pie. Get thee to a supermarket!
Philip Chandler FPFS, CFPTM, Chartered MCSI
Chair of Aspinalls Technical and Investment Committee