THE SHAPE OF THINGS TO COME – The Property Chronicle
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The Economist

Incredibly, I have been involved in preparing forecasts of the UK economy for 45 years. I have a reputation for making bearish calls – occasionally successfully – but have never produced, or agonised over, a forecast as terrible as the one below. We now expect UK GDP to fall by nearly 11 per cent this year, employment to drop by 8 per cent (notwithstanding the Job Retention Scheme) and public sector net borrowing to climb to £110bn. The forecast error margins are very wide and we will take an unusually keen interest in the next Consensus Economics publication to see how differently others perceive the outlook, not just for 2020 but also for 2021. What is the shape of things to come?

Any attempt at assigning magnitudes to economic variables, even in the near future, is liable to attract ridicule but I maintain that the production of forecasts is an essential activity for professional economists. Rarely, but significantly, we demonstrate an understanding of the interplay of forces in the forecasts we craft. More frequently, our projections reveal our misunderstanding of such forces. And on the few occasions that we hit an outturn on the nail, it is the fortuitous cancellation of errors that delivers our prize.

We forecast not to enhance our reputations nor to assert our prescience: we forecast out of ignorance but in search of understanding. Behind an unwillingness to forecast is an unwillingness to think deeply about the future and how it will differ from the present. Forecasting is a vital form of mental exercise for all applied economists.

At such a time as this, we must begin with shapes. I have created some crude representations of the potential paths of output and the price level in figures 1 and 2.  Please forgive the artwork. These are pure guesses of course, and there are plenty of credible variants. However, the temptation to nuance these paths with additional lumps and bumps should be resisted every bit as much as forecasting to the second decimal place. 

The Economist

About Peter Warburton

Peter Warburton

Dr Peter Warburton is director of Economic Perspectives Ltd, an international consultancy, and managing director of Halkin Services Ltd. He was economist to Ruffer LLP, an investment management company, for 15 years and spent a similar length of time in the City as economic advisor and UK economist for the investment bank Robert Fleming and at Lehman Brothers. Previously, he was an economic researcher, forecaster and lecturer at the London Business School and what is now the Cass Business School. He published Debt and Delusion in 1999. He has been a member of the IEA’s Shadow Monetary Policy Committee since its inception in 1997. He is a contributor to the Practical History of Financial Markets course run by Didasko, an education company, at Edinburgh University, and teaches occasionally at Cardiff Business School.

Articles by Peter Warburton

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