Treasury Committee chairman Andrew Tyrie today (10 December) compared economic forecasting to the infamous pool of monkeys working to product Hamlet, adding “eventually someone will get it right”.
The comment was made during the committee’s grilling of the Office of Budget Responsibility in relation to their work that backed the chancellor’s Autumn Statement last week.
Conservative MP Mark Garnier asked the OBR chairman Robert Chote whether he or his predecessors had ever got anything right in terms of economic predictions, to which Mr Chote replied that for instance one economist had predicted the lower GDP figures in 2008, but only after having made the same prediction for the three previous years.
When quizzed about the disparity in business investment predictions between the OBR and Bank of England, Mr Chote stated that it was “like trying to pin a tail on a very fast moving donkey”.
He later added that “for forecasters to complain about data revisions is like sailors complaining about the sea”.
Mr Chote’s advice to politicians was not to bet the farm on their forecasts, but rather to look at the uncertainties raised in reports. “There’s less of a temptation to engage in conviction forecasting for us, why we’re better at this than politicians,” he added.
Another MP took issue with missed estimates of the budget deficit turning into surplus by this point, asking “what’s wrong with you?”
Mr Chote responded: “Productivity and real wage growth didn’t recover as predicted, there was an enormous rise in the oil price, so we failed to predict several things and it turned out to be quite a surprise.”
Early interrogations from Mr Tyrie focuses on productivity levels within the economy, with OBR committee member Stephen Nickell stating that lost productivity is unlikely to be regained, but the path is back towards the historically normal level.
He stated: “The consequences of the credit crunch have led to this productivity puzzle, restricted the expansion of high productivity firms and activities and created a lack of working capital,” adding that “gradually credit availability will improve to the extent that it will to allow us to get out of this situation.”
Conservative MP Steve Baker queried the long-term impact of low interest rates, which Mr Chote stated that as expectations of a rise in interest rates are pushed out further, spare capacity in economy will be used up, with implications on asset prices.
Mr Baker also asked whether savings being run down while consumer credit is being taken up was leading to another boom and bust cycle, to which Mr Nickell responded that the vast majority of bank lending is to household mortgages, so it was not of significant consequence.
“Lending to households is easy, whereas lending to small businesses is much more tricky,” he added.