The next Chancellor is about to inherit some very sticky circumstancesby George Magnus / May 5, 2015 / Leave a comment
The election in the UK is only two days away. Whatever the shape and composition of the government that emerges, the Chancellor of the Exchequer, having feigned perfect knowledge during the campaign, will gather his or her advisers and want an answer to a serious question: “What on earth is going on in the economy here, and overseas?”
Consider this. Less than a month ago, the International Monetary Fund’s flagship World Economic Outlook publication told us that this year, global growth would be driven by “a rebound in advanced economies, supported by the decline in oil prices, with the United States playing the most important role.” Weighing in, the IMF’s chief, Christine Lagarde, praised the UK’s economic performance as her staff predicted our economy would grow by 2.7 per cent in 2015 and 2.3 per cent in 2016, second only to the US.
In the interim, first estimates of the first quarter’s economic activity rates in both the UK and the US suggested that economic activity had ground to a shuddering halt—in spite of the slide in oil prices. “Nowcasting,” which is the practice of feeding thousands of observations into models designed to tell us what’s going on in the economy in real time anticipated this development far ahead of those doing forecasting, who are now racing to catch up with the weaker start to the year. The second quarter “nowcasts” are pointing to a better second quarter, but not substantially better.
In this country, the output estimate of GDP was 0.3 per cent, a little less than h…