Wise person's team keeps a grip on Golden Guru award

National Institute lands `The Independent' forecasting title for second year

For the second year running The Independent's Golden Guru Award for the best economic forecast has been won by the National Institute of Economic and Social Research (NIESR), headed by Martin Weale, one of the Treasury's "wise persons".

The award of the Golden Guru trophy is based on a necessarily arbitrary measure, and there will be no appeal against the decision. The winner is the forecast with the smallest absolute error on three indicators: year-on-year GDP growth (2.3 per cent); target inflation in the final quarter of the year (3.2 per cent); and the average headline unemployment rate in the fourth quarter (6.9 per cent).

The National Institute's success in delivering the most accurate predictions of growth, inflation and unemployment in 1996 looks secure even though the figure for last year's GDP is still preliminary. This would have to be revised by more than 0.4 per cent to overturn the win.

Garry Young, who runs the forecast for the National Institute, had attributed his victory last year to luck. "There must be more skill involved in it than I thought," he said yesterday.

What makes the Institute's success particularly interesting is that it would be one of the foremost contenders bidding for any economic research and forecasting contracted out by the Treasury. Earlier this month it announced that it was assessing several areas of its work to see whether they could be put out to the private sector.

"I would think the successful bidder would have to be an established body with a good track record," Mr Weale said.

Bottom of the league this year was investment bank Robert Fleming, which was much too gloomy about growth and jobs, and correspondingly over-optimistic about inflation. This was the pattern for most of the least-accurate forecasts.

Those who made the opposite error - being much too optimistic about growth - were as a result more accurate about inflation and unemployment. Being better on two out of three indicators put forecasters like Charterhouse and Business Strategies in the middle of the league rather than the bottom.

Many of the forecasts in a close contest were bunched together, especially the others in the top 10. The current range of forecasts for 1997 is much closer than at the same stage last year.

All entries in the Treasury's monthly survey of economic forecasts for last January are entered, but some bodies - including the Treasury itself - are disqualified for not publishing their forecasts of all three items.

How top forecasters fared in 1996

GDP RPIX Unemp Error

(%) (%) (millions)

1 NIESR 2.4 3.0 2.00 0.5

2 Chase Manhattan 2.6 2.9 2.00 0.8

3 ABN Amro HG 2.3 3.2 2.20 0.9

3 DRI 2.2 3.1 2.14 0.9

3 Wynne Godley 2.5 3.3 2.19 0.9

6 BZW 2.5 3.0 2.10 1.0

6 NatWest Bank 2.2 3.1 2.17 1.0

6 SBC Warburg 2.4 3.5 2.10 1.0

6 LBS 2.9 3.0 2.00 1.0

6 OEF 2.7 2.8 2.14 1.0

11 JP Morgan 2.2 2.8 2.10 1.1

11 NatWest Markets 2.5 2.8 2.01 1.1

11 Cambridge Econ 2.4 2.8 2.10 1.1

14 Credit Lyonnais 2.4 2.7 2.10 1.2

14 Nikko Europe 2.2 2.7 2.10 1.2

14 Schroders 2.2 3.2 2.24 1.2

14 Societe Generale 2.8 3.3 2.10 1.2

14 CEBR 2.3 2.0 1.94 1.2

14 WEFA 2.4 2.8 2.10 1.2

20 Barclays Bank 2.5 2.6 2.10 1.4

20 CBI 2.5 2.9 2.19 1.4

20 UBS 2.6 3.4 2.19 1.4

21 DM Grenfell 2.1 2.5 2.10 1.5

21 James Capel 2.5 2.5 2.10 1.5

21 BSL 2.7 2.7 2.10 1.5

24 Charterhouse 3.3 2.7 1.97 1.6

24 Hermes 2.4 2.5 2.15 1.6

24 Kleinwort Benson 2.2 2.6 2.20 1.6

24 Merrill Lynch 2.2 2.5 2.15 1.6

24 Williams de Broe 2.6 2.5 2.11 1.6

29 HSBC Markets 2.5 2.3 2.10 1.7

30 Salomon Brothers 2.1 2.4 2.20 1.9

31 Lombard Street 2.2 1.9 2.10 2.0

32 Goldman Sachs 1.7 3.0 2.34 2.2

32 ITEM Club 2.5 2.2 2.21 2.2

32 Liverpool Univ 2.0 1.5 2.00 2.2

35 Daiwa Europe 2.1 2.3 2.30 2.4

36 Robert Fleming 1.7 2.5 2.45 3.1

GDP: % change on 1995; RPI: % change 1996 Q4 compared with 1995 Q4; Unemployment: millions; Absolute error: sum of errors on GDP growth, inflation and unemployment rate.