Red faces?

In my last post, I mentioned again that I expected more good news on the economy and that I would enjoy hearing the OBR, the Bank of England, the MPC, and consensus economic forecasters try to explain why their pessimism was so misplaced.

We didn't have to wait long for the first bit, at least. Today, the ONS reported that the UK economy grew by 0.4% in May. According to the FT, that's double the expected result and means that the UK economy has grown by 0.9% in the three months to May, compared with the three months to February. For those regular readers of this blog, this will not come as a surprise, but this again confirms that the UK economy is the fastest-growing G7 economy and should deliver annual growth for 2024 in excess of 1.5%. This is twice the rate that the OBR forecast in March.

It would appear that the "hole" that is the popular institutional narrative at the moment is, in fact, in the OBR's forecasts rather than in the public finances (nominal growth, real GDP plus inflation, drives tax revenue). This also makes the new Chancellor's claim that this is the worst economic backdrop since World War Two look somewhat hubristic. Let's also not forget that the MPC's regularly repeated mantra that the UK economy wouldn't grow if rates remained at 5.25% is yet again totally undermined by the facts (last time I checked, rates were still at 5.25%).

All of this is slightly tongue-in-cheek, but there is a very serious point here, which I have made many times in previous blogs. It is increasingly clear that the authorities charged with overseeing interest rates and fiscal policy in the UK are using economic models that are giving them the wrong answers about how the economy will perform. We should all be concerned about this because if these vitally important pillars of the Establishment can't properly forecast what is happening to the economy, they will continue to make poor judgements in relation to monetary and fiscal policy and, in turn, disadvantage the economy as a result.