The Treasury short term forecasts are wrong again

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John Redwood’s latest blog addresses the tragic murder of Jo Cox MP and the treasury short term forcasts.

Jo Cox MP

I was shocked and appalled by the tragic murder of Jo Cox yesterday. I send my condolences to her family. We have all lost a great lady who worked hard for her constituents and our wider democracy.

 

The Treasury short term forecasts are wrong again

The Treasury’s short term forecast said fear of Brexit and Brexit would raise the government borrowing rate, depress sterling, lower share prices and tip output and sales into recession.

As the markets now rate the chances of Brexit at 40% compared with thinking it totally improbable earlier in the year you would expect around 40% of the adjustments the Treasury forecasts to have taken place. So what has happened?

Government 10 year interest rates have fallen from 2% at the start of 2016 to 1.14% yesterday, instead of rising as predicted.

Retail sales are up 6% year on year in May, including a strong May itself, instead of keeling over owing to waning confidence. the May figures are higher than pre Referendum levels and growing faster.

Industrial production is up 1.6% year on year in the last figures, instead of falling.

Sterling is at $1.41 compared to the low of $1.38 at the end of February.

FTSE 100 index was at 5537 on 11 February, and is now 5931 on 16 June.UK shares have followed a similar pattern to other advanced share markets without showing a worse Brexit linked performance.

The Treasury can’t even forecast three months at a time and get it right. They just know how to scaremonger to get it wrong.

It is most unpleasant to watch the UK’s authorities trying to talk the pound down and shock people into losing confidence. Instead of the government seeking to reassure and to stress what is going right, they seem to be watching for any negative figure which they can light on and publicise as evidence of Brexit damage.

Some weakness in housing sales reflecting deliberate policy actions to hit the top end property in London and Buy to Let is attributed to Brexit. Unfortunately for the Remain campaign as we get close to the vote instead of plunging into recession the economy generated more jobs, retail sales accelerated and industrial output expands. Interest rates fall in the markets and real incomes expand.

The economists who use the same or similar models to forecast a poor outcome after Brexit belong to the school of thought that you must put gloom into the forecast. That means you get gloom out. Brexit so far has not hit confidence nor jobs. I see no reason why A pro Brexit vote should do so. Our trade is not at risk and the UK will still be a good place to invest.

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