The 2008 Pre-Budget Report forecast has been based on a number of key forecasting judgements, in particular relating to the path of credit conditions back to a new norm and the structural and cyclical implications of the global financial crisis. Against this backdrop of significant policy stimulus and support for real incomes, but exceptional uncertainty, the Pre-Budget Report forecast is for:
• UK GDP growth of ¾ per cent in 2008 with the economy contracting in the second half of the
year. The recession is forecast to continue into the first half of 2009, with GDP contracting
by –1¼ to –¾ per cent in the year as a whole. Thereafter growth is forecast to recover to
1½ to 2 per cent in 2010 and 2¾ to 3¼ per cent in 2011
It goes on to say
The UK forecast is consistent with National Accounts and balance of payments statistics to the second quarter of 2008 released by the Office for National Statistics on 30 September 2008, and the preliminary estimate of GDP growth in the third quarter released on 24 October.
Elsewhere in the document, it is clear that GDP 2008 has been +0.3, 0.0, -0.5% in the three quarters already declared. On the face of it this requires growth of almost 1% this quarter alone to get the Chancellor even to the correct jumping off point for the terrible years ahead. To most in the real world that is a total fantasy.
I suspect that this may be more complicated than it looks - The Treasury seem to swap between their own definition of "trend growth" and other figures as and when it suits them, but equally I wonder how many people have looked hard at these figures and the methodology which supports them. One thing is for certain, if they haven't already they will now!