Why should we listen to growth forecasters when none of them get it right?

UK plc declined by 0.1 per cent in October and, once again, it was missed by the forecasters, writes James Moore. Rachel Reeves says she’s ‘determined’ to defy their gloomy predictions and deliver on the upside in future. Is she justified in taking a pop at them?

We are determined to defy the forecasts on growth and create good jobs, so everyone is better off, while also helping us invest in better public services.”

So said the Treasury in response to the latest dismal economic release from the Office for National Statistics (ONS). It showed that UK GDP shrank by 0.1 per cent in October and also in the three months to October. Any more of this and the R word – recession – will surely loom large.

But wait: while my natural inclination, under this chancellor in particular, is to take the opposite view to anything coming out of the Treasury, perhaps Rachel Reeves has a point with that implied jab at forecasters who don’t think her growth plans amount to a hill of beans.

The pointy-heads reckon that the UK will grow next year, if not by much. The Office for Budgetary Responsibility (OBR) is arguably the most important forecaster on the block. It suggests a torpid 1.4 per cent expansion, downgraded from 1.5. The OECD’s 2026 estimate, or should that be guess, is 1.2 per cent, the same as the Bank of England’s. The CBI thinks 1.3.

The people making these forecasts have long lists of qualifications and enough letters after their names to fill a novella. They spend hours on end staring at screens, studying spreadsheets and interpreting data from so many sources it’s a wonder they can keep track of it all.

Yet, you could be forgiven for thinking that they’re all just tilting at windmills in the battle to get it right. Perhaps we’d be better off just plucking a number out of the air? It’s Friday, I’m feeling pretty chipper, so shall we say 1.6? Let’s regroup in a year and see who’s the closest to the truth. I fancy my chances. The chancellor will be feeling good if I’m right. She’ll surely claim the credit.

Before I’m deluged by emails from economists complaining about my disrespect, I would gently point out just how badly wrong they’ve got it in the past.

How many, for example, saw the energy-driven inflationary spike of 2022 coming? Tough to call that one, I agree. But come on. We all knew it was going to end badly once it got started. Did the Bank of England correctly forecast how badly? If it had, and if it had been quicker to hike interest rates to combat the inflationary surge, would the peak have hit double figures? Another example: during the financial crisis of 2007/2008, it was too slow to cut.

‘It's easy to take a pop at forecasters. However, they’re a sideshow when set against Reeves’ delivery or the lack of it’

So concerned were people about the quality of the Bank’s forecasts – and the impact they were having on interest rate policy – that it commissioned Ben Bernanke, the former head of the Federal Reserve, the Bank’s US equivalent, to conduct an investigation and write a report. It was less than flattering.

The 19th-century writer Thomas Carlyle insultingly referred to economics as “the dismal science”. Forecasting the economy as a whole is harder than looking at just one facet of it, like the one I discussed above – inflation – but so what? If it’s so hard that it’s basically pointless, then why do it? Or at least, why set so much store by it?

Take the OBR. The markets pay close attention to that august institution. It is tasked with marking Reeves’ homework. It managed to leak the Budget two hours before she had stood up for what became the biggest anticlimax of any chancellor’s career. If we can’t rely on an organisation to keep something so important under wraps, why should we assign any credibility to its forecasts?

Wrapping up the case for the prosecution: the economy’s 0.1 per cent contraction in October compares with the consensus City forecast, compiled by Reuters, of 0.1 per cent growth. That’s right: the Square Mile isn’t any better at this than the official bodies.

Wait just a moment, the forecasters will say, monthly economic figures are notoriously volatile! You know that as well as anyone, you obnoxious, gobby commentator, you.

Indeed they are. But here’s the thing: anyone could see that the October figure was going to be bad if they had just paid attention to what businesses were saying and doing: not much. British commerce had decided to sit on its hands until the Budget was in, a consequence of the chancellor’s absurd decision to leave it until the end of November.

Somehow, the forecasting community managed to miss this, or at least to underestimate its importance. Perhaps they were spending too much time with the numbers and not enough with the news?

It's easy to take a pop at forecasters. However, they’re a sideshow when set against Reeves’ delivery or the lack of it. She has yet to prove anyone wrong on the upside and the clock is ticking.