Forecast comparisons

Recent research by NIESR, published in the National Institute Economic Review on Friday 29th July 2005, compares NIESR's forecasts for output, inflation and key public sector finance variables against the corresponding forecasts from HM Treasury (HMT), the Bank of England (Bank) and the Institute for Fiscal Studies (IFS). The research finds that:

• It is wrong to claim that Treasury forecasts for output and inflation have been better than those of NIESR over the past eight years.
• NIESR forecasts produced in October have generally been better than those of the Treasury in the Pre-Budget Report, whilst Treasury forecasts of inflation have been generally better around the budget, although on some measures NIESR may perform better on output even at budget time.
• Forecast errors on public sector forecasts have been very large and are strongly correlated, and no forecaster should be content with their record.
• On some measures NIESR October forecasts of the public sector surplus are as good as those of the Treasury in the PBR, and are generally better than those of the IFS in January.
• NIESR public sector forecasts have been better than those in the budget in three of the past four years.

We find that NIESR outperforms, on average, other major bodies in its forecasts for output and in particular inflation where simple scores are used. It also performs well on the forecasting of the government current budget surplus but not public sector net borrowing. However, the most obvious conclusion is that the forecasts are of similar quality. No single body showed claim superiority.