The Office of Budget Responsibility must improve the accuracy of its projections or it risks a loss of confidence in the reliability of its figures, according to Conservative MP John Redwood.
In the Budget in March, Chancellor George Osborne announced the OBR had downgraded its growth forecast for 2011 from 2.1 per cent to 1.7 per cent and for 2012 from 2.6 per cent to 2.5 per cent.
Writing on his blog, Redwood calls on the forecaster to apply more scepticism to its forecasts.
He says: “The OBR’s early optimism over growth led to a downward revision of crucial figures for controlling the deficit within nine months of the first forecast. This has not yet mattered but it will be important in the future that they have a better track record to keep market confident in the figures and the system.”
Osborne has made it the Government’s first priority to reduce the structural deficit and Redwood says that efforts to control public finances are sensitive to changes in the level of growth because higher growth means extra revenue without the need to change tax rates.
Redwood also criticises the Bank of England for being “too optimistic” about inflation, “the very thing it is meant to be targeting and controlling”, adding it has frequently had to revise its inflation forecasts upwards.
He says: “Errors in these crucial forecasts by the very bodies that have to make decisions or publish warnings based on them is dangerous for our economy and recovery.”
He adds: “The Government is going to need a strong and convincing growth policy if it is to hit the exacting OBR targets for growth in 2013, 2014 and 2015, when they expect growth to be well above the old trend let alone the more recent one.”
The OBR predicts growth of 2.9 per cent in 2013 and 2014 and 2.8 per cent in 2015.