How many times have we heard that 'all the forecasts were wrong' and it was just 'project fear'? Well, it turns out that not all Brexit forecasts were wrong, far from it, most of them were spot on! It is important for us to be able to respond to these false assertions so what are the facts about Brexit forecasts? There have been several articles recently about this and the best analysis I have seen so far comes from the BBC's economics editor Kamal Ahmed and his article provides just what we need. The key points are:
- Forecasts are not a predictiction of a precise end point. Governments and central banks can change policies to prevent forecasted outcomes.
- Forecasts provide a range of scenarios allowing sensible judgement to be made about our future direction of travel.
- As ever with strong forecasts many central scenarios have come to pass, but not all.
- The forecasts by all reputable economists predicted that our economic growth would slow, the value of sterling would fall and inflation would rise leading to a fresh economic squeeze. All of these forecasts have come true and this means, according to the Bank of England, that tens of billions of pounds of economic activity isn't happening that could have been expected to be happening if Britain had decided not to leave the EU.
- Other parts of the forecasts have not happened (at least not yet): unemployment has not soared, consumer confidence has not collapsed and there is little sign of recession. Why? Because forecasts are not built to include all of the 'dynamic effects' of changing circumstances, such as changes to policy. After the referendum the Bank of England took emergency measures to prevent some of the most damaging effects: they cut interest rates and increased quantitative easing. This acted as a shock absorber. The dramatic fall in the value of the pound also acted a short term stimulus, making our exports more competitive, and the government loosened public spending in the Autumn Statement providing a fiscal boost.
- While the UK economy has performed better than some predicted, the global economy has also done much better than predicted and the UK has benefited from this.
- We haven't left the EU yet and the forecasts were about the impact of actually leaving.
So, key forecasts about the impact of Brexit have proved to be correct. Some have not happened because of the emergency measures by the Bank of England to avoid the worst consequences, changes to government policy, and better than expected world economic growth.
There is nothing to support the ludicrous assertion that all forecasts are wrong.
You can read the full article by Kamal Ahmed, Economics editor, BBC News here.