Written evidence submitted by Simon Hayes,
Chief Economist, Barclays Capital
MAIN OBSERVATIONS
1. The OBR's macroeconomic forecasts are similar
in flavour to the consensus of independent forecasters in that
they envisage steady but subdued growth and some rebalancing of
demand. They are, however, more optimistic than the consensus
to a reasonably significant degree from 2012 onwards:
GDP GROWTH FORECASTS, %
| 2010 | 2011
| 2012 | 2013 |
2014 |
| OBR | 1.8 | 2.1
| 2.6 | 2.9 | 2.8
|
| Consensus | 1.7 | 1.9
| 2.1 | 2.4 | 2.5
|
| Difference (pp) | 0.1 | 0.2
| 0.5 | 0.5 | 0.3
|
Source: OBR, HM Treasury
2. There was a section in the OBR's report that discussed
the key features of independent forecasts, but not the differences
between these and the OBR's own forecasts. When there is a
distinct gap between the OBR's forecasts and those of the consensus,
we think it would be helpful for the OBR to identify the key judgments
that account for the gap. This would improve transparency
further, and help to allay any concerns that the OBR was painting
a picture that was deliberately slanted towards the Treasury's
liking.
3. On our own assessment the main point of divergence appears
to relate to business investment. The OBR believes that business
investment is likely to grow strongly because companies have healthy
cash positions. We agree that access to finance is unlikely to
impede business investment; however, capacity to invest is not
the same as willingness to invest, and business surveys indicate
that firms' appetite to invest remains low. It would be helpful
to know more about why the OBR believes that investment demand
will grow so strongly.
4. It is useful that the OBR has produced an alternative scenario
for the public finances under growth assumptions that more closely
resemble the consensus forecast, and it is reassuring that the
OBR believes the government would still achieve its fiscal mandate
under this scenario. However, this falls some way short of a "stress
test" of the fiscal outlook. A more interesting question
would be what profile for growth would mean that the government
would fail to deliver its deficit reduction plan?
ABOUT THE
CONTRIBUTOR
5. Simon Hayes is the Chief UK Economist at Barclays Capital,
the investment banking arm of Barclays Bank. He is responsible
for formulating the company's view on the outlook for the UK economy,
including monetary and fiscal policy. Simon joined Barclays Capital
in 2005 after eight years working at the Bank of England. Simon
has a BA in Economics and a PhD from Newcastle University, and
an MSc in Economics from Warwick University.
December 2010
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