UK Politics

Robert Chote defends OBR economic growth forecasts

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Media captionRobert Chote says that the chance of any forecast being "bang on the nail" is "virtually nil"

The head of the Office for Budget Responsibility has defended its economic forecasts after MPs accused it of getting them "horribly wrong".

The OBR, which is independent of government, last week downgraded growth forecasts until 2014, including a steep revision from 2.5% to 0.7% for 2012.

Robert Chote told MPs its judgements were based on "accumulating" evidence which had built up since March.

But one MP suggested its calculations were based on "guesswork".

And another questioned the existence of the body, which was established by George Osborne in 2010.

The Treasury uses OBR forecasts as a basis for its decision making and its creation was designed to ensure calculations about economic performance were free of political influence.

The OBR has downgraded its forecasts for growth in 2011, 2012 and 2013 and said total output in the economy was now expected to be 3.5% lower in 2016 than it had forecast at the time of March's Budget.

If proved correct, this would result in an "output gap" - in terms of the size of the economy - of £65bn.

'Puzzle'

Mr Chote said the changed forecast was based on "accumulating evidence that since the recession ended output growth has been weaker than we would have anticipated back in March".

"The decision to change is based on the evidence that has come in," he told the Commons Treasury Select Committee. "The puzzle is try to explain why the evidence shows what the evidence does."

The chair of the committee, Andrew Tyrie, said members were "sceptical" about the reasons for such a sharp downgrade in such a short time while a succession of MPs criticised the OBR's decision making.

"You have changed your view and the result is a £65bn difference. But you are not sure why you have changed your view," said Conservative MP Michael Fallon.

Mr Fallon said some of the economic indicators quoted in the OBR's latest report were couched in so much doubt that they amounted to "just guessing".

"If you were so wrong in March how do we know you are right now? You are being paid to forecast the future. This is not very good, is it?"

Conservative MP David Ruffley said the body had got its forecasts "horribly wrong" and this was serious as "the chancellor's reputation is riding on how good your forecasting is".

And Pat McFadden, a former Labour cabinet minister, questioned what the point of the OBR was.

"These are drastic changes, these are not minimal changes. If you got it so wrong a matter of months why should anyone believe what you have got to say this time or the next time?"

'Virtually nil'

Mr Chote said he would be more concerned if the OBR stuck rigidly with forecasts after the supporting evidence had changed fundamentally.

"You have to recognise that the evidence changes but also what the past has been," he added.

"If our forecasts were absolutely bang on the nail now, I would be warning you and warning myself that the chances of them remaining bang on the nail as history was revised were virtually nil."

While it was difficult to look years ahead, he said the OBR had been asked by Mr Osborne "to police a target" for balancing the nation's books over a five-year period so "we have to reach judgements on these things."

"Just to say 'this is very difficult and history changes therefore let's not look out of the windscreen when we are driving ahead', I think, would be something of a mistake," he added.

Also appearing before the committee, fellow OBR member and economist Sir Stephen Nickell said a white Christmas actually reduced the chances of the UK slipping back into recession.

Some economists have warned that one-off factors, such as heavy snow, could further reduce growth in the last three months of the year.

But Sir Stephen said: "If you have a huge bout of heavy snow before Christmas that will almost probably rule out a double-dip recession because GDP will fall in the fourth quarter (of 2011) and bounce back in the first quarter (of 2012)."

The economy has to contract in two successive quarters for it technically to be in recession.

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