- 27 Dec 07, 01:38 PM
Tis the season for predictions again. Predictions of what the world holds in store for 2008.
For me in fact this is the time of year when I publish a list of useful observations and am forced to attach some forecasts to them. My observations are usually more important than my forecasts, which are worth approximately nothing - i.e. about the same as everyone else’s.
Tomorrow I'll publish my thoughts on how the year ahead is likely to pan out. But today we have to face the difficult bit - how did I do last year?
These are the forecasts I made, which I described as uninteresting. (The full article can be found here.)
• Base rates to end the year at 5.25%
• House prices to rise by 5 to 10%;
• Inflation to edge back down towards its target;
• The economy to grow by 2.5% or thereabouts;
• There would be a new chancellor by this time next year.
On base rates, house prices, inflation and the chancellor I was close enough. On the economy I underestimated the growth of the UK (it grew at about 3.1%).
But anyway, those forecasts, as I said, were uninteresting. The meat of last year’s article looking ahead to 2007 was that although the economy would probably chug along as normal, it might not. The argument was summarised in this paragraph:
“...the seismological analogy is a good one, because in many respects, you might think of the world economy as residing in a place like San Francisco. A place where the climate is benign, and the lifestyle comfortable, but a place located on top of a rather ominous fault-line, of global imbalance. 2007 will probably be quite normal in the world economy and in San Francisco for that matter. But if those fault-lines get disturbed in some way, it could turn out rather differently.”
The point was that 'business-as-usual forecasts' are mostly right, but rarely interesting. Just occasionally, the economy reaches a turning point and is genuinely interesting, but is then particularly hard to forecast accurately.
2007 is a year that we reached a turning point, although it didn’t turn enough to affect my core forecasts of inflation and house prices. So while I didn’t forecast the turning point, I did at least anticipate the possibility.
Come back tomorrow for my thoughts on 2008.
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