One of the mysteries of our lives is the constant confidence of the OBR in economic recovery. There is, it is said, no need for a Plan B because the independent OBR tells us that the economy will recover. Each OBR forecast downgrades its predecessor but there is no denying the cheerful tone of its forecasts. In its recent forecast the OBR expresses the thought that the slide in output in the last quarter of 2010 was a dud figure and suggests that the decline was 0.2 percent and not 0.6 percent. On the back of this assumption the OBR confidently expects a bounce of 0.8 percent in the first quarter of 2011. The OBR gives a reassuring drop in inflation in 2012 to a rate of 2.5 percent.
We shall have to wait for the inflation figures but the output figures are available in some four weeks time, that is before the May local and assembley elections. If the OBR is right, or nearly right, the Coalition can heave a sigh of relief but if they are wrong or mostly wrong they are up to their fetlocks in the mire.
One forecasting way out of such a dire consequence is the use of fan charts. These charts show a range of outcome. You can rely on it that the Government will finish some way between higher and lower points. It does this time. What a relief. But supposing , just supposing, in April it is towards the bottom and not the top of the range. Is there then a Plan B? And what does the Daily Mail say then, poor thing? And what is the answer?