Overly optimistic economic forecasts are down to the “very volatile” nature of the UK in recent years, the Office for Budget Responsibility (OBR) chairman has said.
The official Treasury watchdog was warned by Deutsche Bank analysts that it may have repeated its mistake of over-estimating growth figures and wiping out spending power.
Speaking at a Centre for Policy Studies (CPS) event on Monday, Richard Hughes said key drivers had “jumped around in ways none of us have ever witnessed in our lifetimes”.
He told chief executive Robert Colville: “We’ve been forecasting for the last three years in a very volatile environment… first you had the pandemic, then you had the energy crisis.
“Energy prices rising sevenfold and then coming back halfway from that just in the space of the last year are huge changes.”
He added: “Big changes in those things which determine our cost of living and also the cost of doing business have big impacts on economic decision-making.”
What was said about the economic forecasts?
In a note to clients, analyst Sanjay Raja said the OBR’s economic forecasts track record “hasn’t been impressive” and that between 2010-2019, they were on average 0.8 per cent ahead of reality.
He also warned that inaccuracies could risk wiping out the chancellor’s fiscal headroom, while inflation could eat away at the UK’s public finances.
Hitting back, Hughes said things had been “heading in the right direction” as the OBR prepared its forecast, and suggested falling energy prices and interest rates had led to its predictions “ending up in a more optimistic place than the forecast that came before”.
The row comes as the banking sector is set for further volatility after the buyout of tech bank SBV and the takeover of Credit Suisse, with experts fearing the possibility of contagion.
Commenting on the situation, Hughes stressed: “Historically, financial shocks and instability have been some of the most expensive things the government has had to deal with.”