Watchdog warning of change to growth forecasts

Robert Chote, of the Office for Budget Responsibility, told the Yorkshire Post that “it’s quite possible we will end up having to revise what we said last time”.

In March, the OBR revised down its 2011 growth forecast from 2.1 per cent to 1.7 per cent and its 2012 forecast from 2.6 to 2.5 per cent.

Another downward revision would put more pressure on the Government to scale back its public spending cuts at a fragile time for the UK economy.

House prices are falling, inflation is squeezing consumer spending and surveys last month showed the service and manufacturing sectors are losing momentum.

Mr Chote said: “The picture we painted in March was one of continued economic recovery but one that was weaker than the average of the three previous recessions.

“That’s not surprising because of the impact of the fiscal consolidation, the fact that we are coming out of a financial crisis and recoveries out of financial crises tend to be slower and you have also got households adjusting to the debt position.”

He said gross domestic product data has been “quite hard to interpret for quite some time” because of the volatility of construction figures and impact of the weather.

Mr Chote said: “When we have the second quarter GDP numbers people will be interested in seeing what impact the royal wedding has had, that Olympic tickets have had et cetera so before we do our next forecast – and the Chancellor will pick the date for that – we will have had more data coming out and we will have had a new set of revisions from the annual national accounts – and there may be quite a bit of rewriting of history to come there – so it’s quite possible we will end up having to revise what we said last time.

“But at this stage the last forecast we have is the March one and we are obviously looking at the data as it comes out to see what more it will tell us.”

The coalition Government set up the OBR to examine and report on the sustainability of public finances.

Next month, the OBR is due to publish a report on the long-term health of public finances, which will take into account the scale of public sector pension liabilities and debt from private finance initiatives.

Mr Chote would not discuss figures from the forthcoming report.

He said: “How useful are those large scary numbers in actually telling you what policymakers might need to do about this?

“There’s also a very big present value number for all the tax revenue governments are going to get in the future.

“In terms of thinking about the long-term fiscal position, the fact that governments can raise tax revenue in the future is extremely important.

“Just looking at the negative elements on the balance sheet is painting a partial picture.”

Mr Chote was in Yorkshire this week to deliver the annual Ken Dixon lecture at York University, in which he spoke about the role of the OBR.

While director at the Institute for Fiscal Studies, he called for greater independence in official forecasting, but he denied he had become a “poacher turned gamekeeper” in taking the role of chairman.

Mr Chote, a long-standing critic of Gordon Brown’s economic forecasts when Chancellor, said: “I would say poacher turned poacher as much as poacher turned gamekeeper.

“At the end of the day, as with the IFS, what we say stands or falls by whether people are convinced by the arguments we put out.

“We need to as much as possible show our working. They can see why we have reached that judgment.

“It’s not tainted by political wishful thinking.”

The economics, not the politics

Chancellor George Osborne said that creating the Office for Budget Responsibility gives the public reassurance that economic forecasts are more about economics than politics.

But cynics have pointed out that the creation of the OBR might suit Mr Osborne and Number 10.

Chairman Robert Chote, acknowledging the risk, said: “You can understand why governments might want to get out of the forecasting business, given how reputation sapping it can be.

“The prospect of having another body – you can say ‘we only did that because you told us to’ – is clearly a risk that we have to recognise.”