Tuesday, 30 November 2010

Predictions for 2011

That most reliable and well-established organization known as the independent office for budget responsibility is telling us its all going to be just fine, I would care to disagree.

First lets look at what the OBR are saying:
A revised growth for this year 1.8% which is 0.6% higher than predicted. This does make some sense considering the 3rd quarter was 0.8% growth, which is a lot higher than predicted. This figure also predicts good figures for the final quarter of this year. This is disputable, however sales figures for Black Friday were 0.2% higher than last year, which could suggest a strong final quarter to the year.
What is dubious is that it predicts 2.1% growth next year. I would question this, increased retail sales are likely to be being fueled by the VAT increase in spring, it makes sense to buy now. Also inflationary pressure (the multiplier effect) is only going to add to that. So this is only short term, next year consumption will fall and other sectors are likely to be hit. Construction is likely to take a hit from Government cuts and we are yet to see figures published from other industries. However some indicators do not look good.
The housing market has been falling dramatically; this is a good indicator of an impending recession in the UK. Also if we analyze these consumption and confidence graphs we can see that as the recovery took hold consumption and confidence went up however now it is falling again! These all point towards a double-dip. 

The OBR has altered its prediction of public sector job losses to 330,000 instead of 490,000. This however does not take into account all those on contract, the job losses may be made up elsewere, this is statistical fiddle because contracted workers are not public sector. The reason stated however was that benefit cuts have been higher and departmental cuts lower, this would of course lower the job losses but it is still likely to hurt the economy. Benefit cuts give consumers less to spend, which will cut consumption away. If anything direct benefits cuts have more of a direct impact on the economy.
The OBR is yet to truly be tested, its independence is questioned but it appears to be more optimistic than bias. They are not the only ones though:

We shall see what 2011 holds but I don’t believe it will be a good growth year!
I would predict low growth for this year 0.2-04% for the 4th quarter, but next year will see us slipping into negative growth.

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