How accurate are the IMF’s UK GDP forecasts?

The International Monetary Fund has just cut its growth forecast for the UK for 2013 to 0.7 per cent from 1.0 per cent and to 1.5 per cent for 2014, down from the 1.8 per cent it predicted in January. Here is its report.

These forecasts mean the IMF expects the entire British economy to expand 0.7 per cent this year, and 1.5 per cent next year. That means, effectively, that Britain will be poorer this year and next year because the IMF believes the average inflation rate of “other advanced economies”, which includes us, will be 1.8 per cent this year.

Something has struck me before about the IMF’s forecasts: for the UK, they always seem to go down. It’s cut them here, again, and again.

I decided to see whether my hunch is right.

For the original, go here

The vertical axis of this chart shows the percentage point growth (or decline) that the IMF forecasted for the UK economy. 2.5, for example, means a forecast of 2.5 per cent annual growth.

The horizontal axis shows how far in advance the IMF made its prediction. The IMF starts making predictions two years in advance. For example, in January 2013 it predicted the UK economy growth for 2014.

From this chart, we can see how every year from 2008 to 2012, excluding 2010, the IMF has started with a relatively positive outlook. It has then downgraded the prospects almost every year.

How do the forecasts compare with UK growth?

For the original, go here
For the original, go here

The IMF makes two main predictions in April and around September every year. We’ve had the April one today. From the chart, we can see that the April forecasts over the years did not predict the severity of the UK recession in 2009. Its April forecasts did not foresee the rebound that occurred in 2010, nor did they predict the double-dip and possible triple-dip recessions that have followed. The autumn prediction, made about three months in advance of the end of the year, is much more accurate.

Political ramifications

The IMF’s cut in growth forecasts will be seized on by Labour and critics of George Osborne that his austerity policies aren’t working, especially if next Wednesday‘s GDP figures show the UK is in a triple-dip recession.

My advice to the Government and the Opposition, based on this data? Wait until the autumn release, then have at it.

How likely is that? Well, you’d need a chart with a bigger scale than these ones to answer that…


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