Mr Osborne and the semiotics of GDP


George Osborne: "You don't have to tell me the economic environment is very difficult"

He might be in Japan, but the chancellor is keeping one eye on the GDP figures back home.

I interviewed him in a slightly odd location earlier today - on an empty bullet train parked outside the main Tokyo rail depot. He admitted for the first time that the UK economy probably wasn't going anywhere either, at least in the fourth quarter of 2011.

He reminded me - not once, but twice - that the Office for Budget Responsibility had forecast that GDP would be negative in those three months. But, he was quick to add, it had not forecast a recession.

I thought it was very helpful of him. I might have forgotten.

Naturally, Westminster cynics will see it differently. They will say it's part of a careful softening-up exercise, so we're less perturbed, if and when there's a negative sign in front of that preliminary GDP figure estimate when it comes out next Wednesday.

You can see the forecast in detail in Chart 3.9 of the OBR's Economic and Fiscal Outlook, released at the time of the Autumn Statement.

OBR chart

It's true that the OBR did not forecast another recession. Though it did say there was a one in three chance of the economy shrinking in 2012.

You might think the softening exercise unnecessary. After all, many private forecasters are also predicting a negative GDP figure.

If the ONS says that our national output shrank by, say, 0.1% in that period, you have to expect these City folk will not send out urgent missives declaring that our economy is heading into a downward spiral.

Instead, I am sure they will remind us that the average revision to these first estimates has been 0.23 percentage points in either direction over the last 5 years. Over a longer time period, the average revision is a good deal larger.

They say economists put decimal points into their forecasts to show they have a sense of humour. The ONS first estimate for GDP is better than a forecast and ought to be closer to reality. But it is still very much a first draft.

As I said last week, what we should take from a very small number - positive or negative - is that the economy is broadly flat. Whether it's +0.1% or -0.1%, on this view, shouldn't make much difference.

But the chancellor knows that in political terms that is all drivel. In Fleet Street and Westminster a negative sign will make all the difference in the world, at least for the first few days.

Rightly or wrongly (mainly wrongly), many will see -0.1% as clear evidence that we're heading for a double dip, whereas +0.1% will suggest the economy is holding its ground.

Perhaps the chancellor could expect a more logical, calm and considered response to the GDP figures if he were finance minister for Japan. But there's fat chance of him getting it next week.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 18.

    We all know this government won't take responsibility for its role in delivering a double dip recession - an outcome totally predictable when Osborne sat down after the initial Public Spending Review in Autumn 2010.

    He's sucked demand out of the economy. The solution was to maintain spending, not slash it. Now the chickens are coming home to roost and it is right Osborne is hoist by his petard.

  • rate this

    Comment number 17.

    Once you introduce 'confidence limits' and 'rounding errors', forecasts at these levels of detail are pretty irrelevant.

    Whether the increment is positive or negative shouldn't trouble Mr Osborne. We've had enough economic fast-food stuffed down our necks over the past two years to be able to discriminate between forecasts and reality.

    Take a walk down the high street... read a few blogs...

  • rate this

    Comment number 16.

    Many governments in the Eurozone would be grateful of an economy which was flat, with inflation falling and interest rates at record lows.

  • rate this

    Comment number 15.

    No reason to sit and do nothing. Plenty of work to be done - it just needs leadership and vision to get it off the ground. What about a mandatory scheme to insulate every property to the best standard possible in (say) the next 2 years? That would involve surveyors, planners, organisers, transport, manufacturers & installers. Economically sound, very Green and a +ve legacy for our children.

  • rate this

    Comment number 14.

    I wonder if George could help us out regarding the religion of the Pope or where bears go for their toilet needs.

  • rate this

    Comment number 13.

    1. Happyineuroland
    When looking at growth why is inflation allways overlooked. Charts are meaningless without this. Even if the figures show 0.1+ this is actually a drop of 3%.
    You're wrong I'm afraid. GDP is already adjusted for inflation before it is published. GDP is net growth, i.e. after inflation is taken into account.

  • rate this

    Comment number 12.

    Young Gideon has had quite long enough in charge of the aslyum to realise his tactics are self defeating.....macro economics does not, and never did, work like our own household budgets do.......the debt reduction measures are making the situation worse, not better.......demand has been in large part sucked out of the economy as whole.....wake up......

  • rate this

    Comment number 11.

    1. Assuming the figures quoted here are real GDP growth and not money GDP growth (which they usually are), inflation is taken into account. So, no, it's not a drop of 3% in real terms, is a rise in money value roughly offset by inflation.

    Flat growth does not necessarily mean no change in unemployment. It can mean a rise or a fall depending on plenty n a lot of other factors.

  • rate this

    Comment number 10.

    Come on Green Future, you credit Osborne with too much! Nobody could take the title of the dumbest Chancellor ever away from Gordon!

  • rate this

    Comment number 9.

    I am a director of a small sheet metal workshop, and we have come back in January expecting no work, but instead we are flat out, running overtime. It wasnt like we were quiet in the final 1/4 of 2011, but the news lead us to believe the world we knew was over. How about we change all the negatives stories for positive ones, go out look for stories, rather than repeating everything bad all day!

  • rate this

    Comment number 8.

    Steph, does George know the IMF are coming, cap in hand, again?

  • rate this

    Comment number 7.

    I'm not surprised in the least about thses figures, the UK government, under Labour, spent 53% of GDP and now cuts are being made.

    I'm of the opinion that flat line is actually not too bad.

    What UK plc needs is fewer media outlets continually reminding us about the economy and we'd soon forget about it and move ob.

  • rate this

    Comment number 6.

    The man's doing his best to beat Gordon Brown as the dumbest chancellor ever.

  • rate this

    Comment number 5.

    My view is that the flat-lining nature of the graph shows he has got it about right. Certainly the system seems sufficiently damped but not over-damped. Remember the old compuer "moon landing" game? Too much austerity leads to a crash landing. Too much stimulus sends you into space followed soon after by an even bigger crash.

  • rate this

    Comment number 4.

    It may be that the government's economic and deficit reduction policies are in a fast flowing river of excreta and they are without a paddle but all Miliband can do is to say "me too" and tell the hapless clerks of Doncaster, put up with pay cuts.

  • rate this

    Comment number 3.

    'Fascinating' - but it does not matter as is not as important & relevant as many other indicators:

    Avreage earnings
    Inflation - RPI -CPI and ideally an accurate measure of real inflation
    Business start ups and failures etc

    GDP needs to be 2.0 or 3.0 percent of quarterly trend before anyone gets excited about it as is nonsense as GDP figures are manipulated, fudged & massaged

  • rate this

    Comment number 2.

    How very appropriate to be interviewing Osborne on an empty train going nowhere in the most debt encrusted developed nation. It must feel like home to him. It does not matter if it is .1% + or -. The OBR prediction (not forecast) needs revision particularly in the PSBR because it is likely we will need to borrow even more. OBR may be independent but that does not guarantee competence. MPC likewise

  • rate this

    Comment number 1.

    When looking at growth why is inflation allways overlooked. Charts are meaningless without this. Even if the figures show 0.1+ this is actually a drop of 3%.
    Do the rising dole queues not illustrate this, or have we suddenly become more productive???


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