Analysts fear watchdog is too optimistic on UK growth

Tim Wallace
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OFFICIAL growth and inflation forecasts are too optimistic, because the independent body responsible is afraid of spooking markets with a gloomy outlook, a top economist warned yesterday.

The Office for Budget Responsibility (OBR) was set up to monitor the economy to judge how likely the chancellor is to hit his debt and deficit targets.

It is supposed to be independent, to avoid the political manipulation that had plagued government forecasts in the past.

But economists fear the OBR is still too optimistic – not because it is being pushed by politicians, but because it fears the impact on confidence of a pessimistic forecast.

“The OBR is inclined to be too optimistic – if I was the OBR, I would worry that a forecast that debt will rise to above 100 per cent of GDP would prompt downgrades from some agencies,” said BNP Paribas’ Paul Mortimer Lee to the Treasury Select Committee of MPs.

“Being wrong in too pessimistic a direction might have adverse consequences here and now,” so they instead prefer to be too optimistic, he said, predicting another downward forecast will come in the near future.