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Is Carney’s growth forecast anything to get excited about?

8 February 2018

3:45 PM

8 February 2018

3:45 PM

It is really worth bothering with Mark Carney’s upgrading of the Bank of England’s growth forecast for 2018 from 1.5 per cent to 1.7 per cent? Carney, you might just remember, warned before the EU referendum that the UK would most likely suffer a technical recession if Britain voted to leave. Even in August of that year, six weeks after the vote, when it was already clear that the economy was not diving into the abyss, he was predicting a sharp slowdown. Growth in 2017, he suggested, would come out at 0.8 per cent. In the event it was 1.8 per cent.

We have seen enough forecasts over the past couple of years to realise that Michael Gove was absolutely right when he said during the Leave campaign that the country has had enough of economic experts who try to foretell the future. They cannot do it. Such is human psychology, though, that we cannot resist clinging to whatever information we have to hand. We fool ourselves that some guidance on the future direction of the economy is better than nothing – even when past experience firmly suggests the opposite.

On one thing, though, Mark Carney’s statement today is to be applauded: he called for those making economic forecasts in future to make their methodology known – to explain what assumptions they are making and how they are crunching the numbers. Instead, all we tend to get from the IMF, the OECD and all others who pump out these forecasts is a figure, combined with a few lines of explanation. It is an axiom of scientific research that you publish your methodology and your calculations, so that others can attempt to reproduce your findings. We keep getting economic forecasts thrown at us, by contrast, with no such meat to chew – we just get a figure, which we are supposed to respect because it has come from someone who professes expertise in the field.

Finally, yesterday we got a sneak at the forecasts for the effect of Brexit on economic growth which the government has tried so hard to keep quiet. No wonder ministers tried to stop them being published, when they show the economy of every region outside London apparently suffering a depressing effect over the next 15 years in each of three scenarios: leaving the EU with no deal, leaving with a trade deal and leaving the EU but staying in the single market.

They pose a simple question: if ministers really believe these figures, why on Earth aren’t they trying to wriggle out of Brexit? I suspect the truth is that many of those in government do not believe them – they know that economic forecasts are pretty useless over 12 months, let alone 15 years, and are happy to use their own judgement instead.

How much better had the government had the confidence to publish these assessments months ago, along with the full methodology and the identity of the authors – just like a paper in Nature. Had they done that, the country could have had a enlightening debate. I suspect we would have found that the civil service’s number crunchers had made a lot of negative assumptions about things the country would lose from leaving the EU, but rather fewer assumptions about things we might gain when we leave. This is, after all, logical: It is easier to calculate, say, the effect of paying World Trade Organisation tariffs on stuff we might export to the EU in future – but very much more difficult to calculate the effect of future trade deals which we might or might not make with countries outside the EU. No-one can know the latter, so it is unlikely to have featured in any assessment.
It isn’t too late – the government should take Carney’s advice and publish the full details without delay.


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