Reading some of the media in recent weeks we at Cebr have a sense of déjà vu. Some of the stories seem simply to show how other people are now catching up with what we were predicting half a year ago.
Ambrose Evans Pritchard in the Telegraph said (12 May) that the UK’s recovery might get GDP back to its pre pandemic level in the summer – Cebr forecast this on 16 November 2020 when we predicted: ‘GDP in the second half of 2021 pretty close to where it was at the end of 2019’. We also warned that: ‘the problems may start then, with inflation starting to rise leading to higher interest rates at the same time as the government has to tighten fiscal policy’.
Also on 12 May, the BBC reported that the markets ‘were sliding on fears of rising inflation’. The markets would have avoided the rise and fall had they acted on the same Cebr report from last November!
The Financial Times, yet again on 12 May, quotes Carlos Tavares, CEO of Stellantis who now own Vauxhall and a range of other car makers, warning that ‘brutal environmental policies in the EU risk pricing the middle class out of car ownership’. Cebr drew attention to this in our report for FairFuel UK where we calculated (page 12 of the report) that at current costs half the UK population could not afford electric vehicles.
Meanwhile two weeks ago, the Bank of England attracted media attention for raising its forecast for GDP growth in 2021 to over 7%. It’s good news that they have caught up, but our ‘Top Ten for 2021’ had already forecast last December that: ‘Partly because of the greater measured fall and partly because of the high propensity to consume in the UK, we expect that spending boosted by the £200 billion of savings built up during the pandemic could lead to growth around 8% in 2021.’
It’s great that others are catching up with our forecasts, and we seem to have had quite a good forecasting run since the pandemic started. But before we get big headed, it’s worth remembering the forecasts we got wrong, too. Most prominent amongst these was our prediction of a 14% house price fall in 2020/2021. We made forecasts of a fall roughly on this scale in March, June and September 2020. And it looks so far like we got wrong not only the scale but even the direction!
Yet oddly it is this forecast which we got wrong that was probably the most useful. There was a real danger in 2020 that with the economy in free fall, the housing market could follow. As a result the government implemented policies that supported the economy – loans and furlough – and these were supplemented by direct measures to support the housing market like the stamp duty holiday and the 95% mortgage scheme announced in this year’s budget. These policies plus expansionary monetary policy have supported the housing market during the pandemic. One housing market prediction Cebr did get right was that cutting stamp duty would prove to be a net positive for the Exchequer based on the increase in revenue from much higher housing market turnover. It would probably be fair to argue that our (and others’) pessimistic forecasts helped cause the government to adopt policies that delivered a better outcome than had been predicted. So to some extent this is an example of forecasting success, of a kind.
I have in the past referred to the ‘law of self contradicting expectations’. If people expect something, it often causes policy changes that prevent the expectations from being realised. This looks like a good example.
Neither businesses nor governments can survive without forecasts. At Cebr we keep trying to improve our techniques, despite the difficulties that the pandemic has thrown at us. Because we run our own trackers and have access to substantial anecdotal evidence from our clients and contacts we have some unfair advantages over those who are only guided by theory and government data. We are experimenting with web scraping and other forms of real life data, as well as trying to measure better the digital economy, an ever growing part of GDP. Since forecasts have to be made, our aim is to make them as accurate as possible.
For more information please contact:
Douglas McWilliams email@example.com phone: 07710 08365