pbr04 forecasts

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Uncertainty in the forecasts: 

Uncertainty in the forecasts Carl Emmerson

Previous HMT forecasting errors: 

Previous HMT forecasting errors Source: HM Treasury (2003)

Previous HMT forecasting errors: 

Previous HMT forecasting errors Source: HM Treasury (2003)

Errors in borrowing forecasts: 

Errors in borrowing forecasts Source: HM Treasury (2003); Emmerson, Frayne and Love (2004) % of GDP

Errors in borrowing forecasts: 

Errors in borrowing forecasts Source: HM Treasury (2003); Emmerson, Frayne and Love (2004) % of GDP

Uncertainty over path of PSNB: 

Uncertainty over path of PSNB Forecast errors are normally distributed Average error is zero But forecasts are based on ‘cautious assumptions’ Accuracy is the same as past This will understate true forecasting errors as previous errors not adjusted for subsequent policy changes

Uncertainty over path of PSNB: 

Uncertainty over path of PSNB Source: IFS calculations

Uncertainty over path of PSNB: 

Uncertainty over path of PSNB Source: IFS calculations

Uncertainty over path of PSNB: 

Uncertainty over path of PSNB Source: IFS calculations

Uncertainty over path of PSNB: 

Uncertainty over path of PSNB Source: IFS calculations

Uncertainty over path of PSNB: 

Uncertainty over path of PSNB Source: IFS calculations

Uncertainty over path of CBS: 

Uncertainty over path of CBS Forecast errors are normally distributed Average error is zero But forecasts are based on ‘cautious assumptions’ Accuracy is the same as past This will understate true forecasting errors as previous errors not adjusted for subsequent policy changes Assume similar errors in forecasting current budget surplus and net borrowing Account for correlation in errors from all forecasts made at the same time

Will the golden rule be met?: 

Will the golden rule be met? Source: Emmerson, Frayne and Love (2004)

Will the golden rule be met?: 

Will the golden rule be met? Source: Emmerson, Frayne and Love (2004)

Will the golden rule be met?: 

Will the golden rule be met? Source: Emmerson, Frayne and Love (2004)

Will the golden rule be met?: 

Will the golden rule be met? Source: Emmerson, Frayne and Love (2004)

Will the golden rule be met?: 

Will the golden rule be met? Source: Emmerson, Frayne and Love (2004)

Will the golden rule be met?: 

Will the golden rule be met? Source: IFS Calculations

Conclusions: 

Conclusions Over the current economic cycle: Treasury forecast for Golden rule to be met At best a 62% chance of success Relies on stronger growth in receipts and slower growth in spending Looking forwards Treasury forecast for Golden rule to be met Relies on strong growth in tax receipts Not expected to be met under ‘cautious case’

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