WBSFS: 2017 UK growth to be more than two per cent
25 November 2016
- Warwick economic forecasters see no evidence of Brexit impact in latest data
- UK GDP remains most likely to grow between two and three per cent in 2017
- Three-in-four chance growth will exceed OBR's 1.4 per cent forecast
- Inflation will rise but low probability it will exceed three per cent in 2017
In contrast to the recent forecasts from the OBR and the Bank of England, the Warwick Business School Forecasting System (WBSFS) finds no evidence in the latest data to suggest UK economic growth will disappoint in 2017.
The WBSFS continues to find little evidence in the data to suggest that Brexit will lead to disappointing economic growth in 2017: the WBSFS expects GDP growth will likely be between two and three per cent.
But Brexit and the uncertainty it has introduced, may well alter historical patterns in the data and explain the more pessimistic growth forecasts recently issued by the Office for Budget Responsibility (OBR) of 1.4 per cent and Bank of England.
Commenting on the latest WBSFS forecasts, timed to coincide with publication of the latest GDP data from the Office for National Statistics, Ana Galvao, Professor of Economic Modelling and Forecasting and part of the Economic Modelling and Forecasting (EMF) Group, said: “Since the referendum, the OBR and Bank of England have both become more pessimistic about prospects for GDP growth in the UK in 2017.
"In contrast, the WBSFS benchmark forecasts suggest a three-in-four chance that growth in 2017 will, in fact, exceed the OBR’s and Bank’s latest forecasts.
"But the WBSFS forecasts are produced under the assumption that historical relationships and patterns in macroeconomic data continue to hold post-Brexit. They may well break down.”
James Mitchell, Professor of Economic Modelling and Forecasting in the EMF Group added: “What is especially uncertain is how the apparent increase in macroeconomic uncertainty, post-referendum, will affect relationships between official macroeconomic time-series.
"But what the WBSFS does reveal is that while a change for the worse in terms of future economic growth may happen, recent economic data provides no clear indication that this will happen in 2017.”
Anthony Garratt, Professor of Economic Modelling and Forecasting, said “The WBSFS also reveals how the Bank of England and OBR are much more confident that inflation will turn out higher than historical patterns in the data would lead us to suggest. In particular, likely anticipating the effects of the depreciation in the pound since Brexit, all three forecasters expect inflation to exceed the two per cent target in 2017.”
Instead of using a single forecasting model or relying on the judgement of the Bank of England’s Monetary Policy Committee the WBSFS combines five state-of-the-art econometric models to produce judgement-free macroeconomic forecasts for UK GDP growth and CPI inflation. These forecasts are updated each quarter to reflect the latest data.
By using model averaging and following well-established methods in statistics, meteorology and economics, the WBSFS takes a weighted combination of each models’ forecasts, where higher weights are awarded to models that show the better recent forecasting performance. The WBSFS quantifies and communicates the forecast uncertainties by producing probabilistic forecasts.
Professor Anthony Garratt teaches Economics in the Global Environment on the MSc Management course and on the Executive MBA and Empirical Applications in Macro, Financial and Energy Economics? on the MSc Finance.
Professor Ana Galvao teaches Economics for Management and Business and Forecasting for Decision Makers on the MSc Management course.