Economic Forecasts are Best Guesses. Don’t let Brexiters Dub Them "Fake News"

In one of the finest examples of an intervention that had the precisely reverse impact than what was intended, Jacob Rees-Mogg has given the kiss of life to the economic forecast.

These pinpoint-forecasts of economic growth, inflation, export volumes rises or increases in property prices X years hence have become the go-to tool for any government body, pressure group, financial institution, or thinktank desperate to bore its way onto the mainstream news agenda.

And the media will always be happy to trot out the “findings”. The recent International Monetary Fund quarterly update to its economic forecasts that showed growth in the eurozone economy marching ahead by 2.2% in 2018 while Britain, its soon-to-be detached neighbour, bumbling along at 1.5% was a great example.

Of course, those with slightly longer memories will recall that the IMF was forecasting robust economic growth of almost 5% in 2008 as late as October 2007 when queues were gathering outside branches of Northern Rock bank in the UK.

More recently in the run-up to the June 2016 EU referendum vote, the Treasury warned that a vote to leave the eurozone that left the UK trading on World Trade Organisation rules would leave the UK economy 7.5% a year smaller after 15 years. Even sealing a bilateral trade deal would leave the UK 6.2% short, and only membership of the European Economic Association would leave us 3.2% worse off.

The path of the economy since the vote — slower growth but not falling off a cliff — allowed Brexiteers to kick the Treasury’s gloomy forecasts (forgetting perhaps that the UK won’t leave the EU until 29 March 2019 at the very earliest).

Combined with Michael Gove’s generalised attack on experts, it fertilised the fashionable opinion that forecasts are by definition wrong and almost certainly biased, produced as they are by organisations that are prejudiced against Brexit — at least according to the pro-Brexit lobby.

Former Cabinet Secretary Andrew Turnbull was quite right to lambast the Brexiters for adopting dangerous tactics

This culminated in the furious reaction by Brexit Minister Steve Baker and Jacob Rees-Mogg, the leader of the pro-Brexit European Research Group of Tory MPs, to February’s leaks of Treasury forecasts on the impact on various Brexit outcomes.

Baker, who one should remember is a minister whose work is supported by civil servants, said servants had never produced a correct economic forecast, and said he looked forward to continuing to prove the “horror story predictions” of economists wrong. A couple of days later Baker was forced to apologise for maligning the civil service.

At least he apologised. For his part, Rees-Mogg has repeatedly said that in drawing up the forecasts at all, the Treasury was trying to influence the argument and skew the debate. He has accused Treasury officials of “fiddling the figures” on Brexit to keep the UK in the European Union customs union.

It is a sign for low the debate has descended when a prominent MP can think it is acceptable to attack the civil service for doing their work.

Former Cabinet Secretary Andrew Turnbull was quite right to lambast the Brexiters for adopting dangerous tactics similar to those of right-wing German nationalists between the two world wars. He said Whitehall officials had become the victims of “pre-emptive scapegoating” by Brexiters who feared they were losing the argument.

One thing that stands out is that the leaked forecasts are pretty similar to those produced by the Treasury before the vote. The “no deal” scenario, which would see the UK revert to WTO rules, would reduce growth by 8% over that period. A comprehensive free trade agreement with the EU would still leave UK growth 5% lower over the next 15 years compared to current forecasts. The softest Brexit option of continued single-market access through membership of the European Economic Area would, in the longer term, still lower growth by 2%.

That almost certainly will not be absolutely accurate but they do serve to point to a general direction of travel. It is worth noting that although Britain has not left the EU yet, already inflation has risen, the pound has devalued, growth has slowed, and business investment has weakened.

The ultimate irony is that the whole Brexit project is based on an even shakier forecast, which is that the benefits of future trade deals will outweigh any short-term EU impact. But no Brexiter seems to be attacking those forecasts.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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