Box sets » Forecast process

In each Economic and fiscal outlook we publish a box that summarises the effects of the Government’s new policy measures on our economy forecast. These include the overall effect of the package of measures and any specific effects of individual measures that we deem to be sufficiently material to have wider indirect effects on the economy. In our March 2021 Economic and fiscal outlook, we adjusted our economy forecast to take into account plans to loosen fiscal policy in 2021-22, before tightening from 2023-24 onwards, as well as for several specific measures, including the impact on our business investment forecast of temporarily much more generous capital allowances.

Economy categories: Business investment

Cross-cutting categories: Fiscal multipliers, Forecast process

Our ability to forecast accurately is heavily dependent on the quality of the data we can use. In this box we explained how statistical and expenditure data could be distorted by problems in delivery of the benefit, and the difficulties this creates in identifying emerging trends in the data.
There are several possible approaches to forecasting benefit spending. In this box we outlined the key issues the modelling of disability benefits needed to address, the three approaches we used to forecast spending, and the strengths and limitations of each, concluding that a combination of approaches was better than reliance on any single one.
Forecasting mortgage debt
Before November 2016, our forecasts for mortgage debt (secured debt) were based on forecasts for mortgage demand and supply, as the determined by relationships in our house price model. In light of systematic forecast errors, this box outlined changes to our methodology for forecasting mortgage debt, which moved to an approach based on an accumulation identity.
Stamp duty land tax (SDLT) is one of the more volatile sources of receipts. In our 2016 Forecast evaluation report, this box identified a number of reasons why forecasting SDLT receipts is challenging, including the concentration of receipts in a small proportion of expensive properties and the effects of significant policy changes.

Economy categories: Housing market, Property transactions

Fiscal categories: Receipts, Stamp duty land tax

Cross-cutting categories: Forecast process, Forestalling

External forecasters’ revisions to GDP growth and borrowing
Our 2016 Forecast evaluation report was published around four months after the EU referendum was held. Over that period forecasters had revised their real GDP growth and borrowing forecasts. This box summarised those revisions and the relationship between them. It illustrated the uncertainty that forecasters faced in trying to predict the impact of the referendum result and Brexit on the economy and public finances.

Economy categories: Real GDP

Fiscal categories: Public sector net borrowing

Cross-cutting categories: Forecast process, External forecasts

Modelling changes were made to the deductions element of the VAT model and to introduce a new model for NICs. The box outlined the modelling changes and the likely effect on receipts.

Fiscal categories: Receipts, National Insurance Contributions, VAT

Cross-cutting categories: Forecast process

We use a large number of fiscal forecasting models to generate our bottom-up forecasts of the public finances. This box outlined why models are essential forecasting tools, the various types of model used and how their performance is assessed.

Fiscal categories: Receipts, Environmental levies

Cross-cutting categories: Forecast process

Revisions to the central government net cash requirement forecast
Our March 2015 Economic and fiscal outlook forecast highlighted that CGNCR ex outturn were significantly lower than what implied by our fiscal forecast. This box decomposed the revisions to CGNCR ex since our March 2015 forecast and it explained the factors that contributed to the divergence between our CGNCR ex forecast and the outturn.
Revised assumption for the long-run wedge between RPI and CPI inflation
RPI inflation differs from CPI inflation for a number of reasons. Collectively the difference between the two measures is refered to as the 'wedge'. In light of more evidence this box, from our March 2015 Economic and fiscal outlook, re-examined historical contributions to the 'wedge' and set out our latest assumptions for the long-run difference between the two measures.

Economy categories: Inflation

Cross-cutting categories: Forecast process

The indexation of excise and environmental duties in our forecast
Our forecasts for excise and environmental duties assume that rates are indexed in line with default parameters. These parameters are set by the Government and are detailed at each Budget in the Treasury’s Policy costings document. The assumptions represent a source of economy and
policy-related uncertainty in our forecast. In this box, we looked back at how a selection of duty rates moved over the Parliament relative to the default uprating assumptions assumed in the OBR’s first forecast in June 2010.

Fiscal categories: Receipts, Vehicle excise duties, Environmental levies, Fuel duty

Cross-cutting categories: Forecast process

Forecasting debt interest spending
Our March 2015 Economic and fiscal outlook forecast highlighted large changes in our debt interest forecast since previous fiscal events and the added complexity that debt interest was expressed net of the effect of gilts held by the Bank of England Asset Purchase Facility (APF) associated with past quantitative easing. This box described how we produced the debt interest forecast and illustrated some of the sensitivities to which it was subject.
The evolution of population projections since 1955
Population projections are subject to significant uncertainty, particularly over very long time horizons. This box outlined the error in successive population projections and the sources of error.

Economy categories: Labour market, Population and migration

Cross-cutting categories: Forecast process, Demographics

In recent years, the government consumption deflator had been weaker than we expected. This box set out our assumption that the weakness of the government consumption deflator was likely to persist over the forecast period. The box also reviewed the outlook for the household consumption deflator and explained our assumption that this would be broadly equal to CPI inflation in the long run. Taken together with our assumptions for other deflators, these assumptions implied a medium-term GDP deflator growth assumption of 2 per cent, revised down from a previous assumption of 2.5 per cent

Economy categories: Inflation, GDP deflator

Cross-cutting categories: Forecast process

The OBR provides independent scrutiny of policy costings and determines any resultant impact on the economic forecast. An estimate of the impact of a policy measure is included in the public finances forecast only when a firm policy has been announced and there is sufficient detail to quantify the effect of the policy. This box summarised the policies that were included in our November 2010 forecast.

Fiscal categories: Public spending, Receipts

Cross-cutting categories: Forecast process