The ONS figures record the highest level of April public sector net borrowing on record at £10bn, up from £7.3bn in April 2010. The Treasury, responding to the figures, cited the ONS’s own statement which noted the 2010 figures were boosted by a bank payroll tax that raised £3.5bn.
Admittedly, in this case the ‘one-off’ appears to be limited to be a black and white issue: that payroll tax was not levied this year, and without it the figures are broadly similar. But there is no denying that a series of more suspect ‘one off factors’ are equally prevalent elsewhere.
The most widely accepted use of such terminology can be found in the Bank of England’s inflation forecasting: Mervyn King and co have repeatedly said the likes of VAT rises, higher commodity prices and other input costs will be filtered out of inflation rates in the coming months.
But the Bank has been saying that for some time now, and new MPC member Ben Broadbent appeared to admit as much when giving evidence in front of the Treasury Select Committee last week.
“There are things that the MPC should worry about, particularly with regards to commodity prices. It treats these as one-off prices and that has been the most important single forecasting error," Broadbent said.
Expectations
The best you can say about such forecasting is that the presence of many one-offs all pointing in the same direction in an unfortunate coincidence. But as CPI continues to rise, so too may suspicions that King is merely attempting to manage inflation expectations at a time when the economy continues to founder.
Given the continual struggles of the UK economy, it is no surprise that headline growth rates have also been falling victim to unforeseen circumstances – and not just this year. Much was made of the 0.5% drop in growth in Q4 2010, put down to bad weather; but we should not forget that the ONS also pointed to bad weather in Q1 2010 as one reason for the meagre 0.2% growth in that quarter.
The absence of snowfall in the summer months is unlikely to mean GDP growth emerges unhindered by unusual factors: King has already said that the royal wedding will have a negative impact on GDP growth in Q2 2011.
Those already preparing their excuses for 2012 expansion will probably see the extra bank holiday on 5 June, for the Queen’s diamond jubilee, as a headwind that may or may not be offset by a Q3 bounce courtesy of the London Olympics.
Retail sales
The prominence of weather-driven data in other areas has similarly served to conceal the fact that the UK economy is going nowhere. Take UK retail sales: figures fell by 0.8% in December 2010 (later revised down to 1.4%), with heavy snow cited as the cause. That was offset by a 1.9% increase in January, followed by a 0.8% drop in February and a 0.2% rise in March.
Some economists are already predicting that the 1.1% increase in April, reported last week and put down to good weather and the royal wedding, may well lead to a drop in May’s figures. The net effect is clear: stagnation.
Which brings the conversation back round to those public finances. The government says that a revision to last year’s figures, as detailed in today’s ONS statement, gives credence to its deficit reduction strategy.
The true test of those policies are still to come, but economists are already warning that, in the words of Capital Economics’ Samuel Tombs, that fiscal forecasts are “predicated on overly optimistic forecasts for economic growth”.
Expect one-off factors to shoulder much of the blame if and when those growth forecasts are downgraded.
