How has Alistair Darling got his forecasts so wrong?
Today's announcement by the Bank of England of an expected 4.5% reduction in UK economy in 2009 is significantly higher than the figure of 3.5% put forward by the UK government just a matter of days ago. As a consequence, Alistair Darling is now under intense pressure to revise his forecast for the UK economy and recalculate the potential budget deficit for 2009 and 2010 as well as the level of national debt.
But the UK government is adamant that the forecast of a 3.5% reduction this year and a 1.25% increase in the UK economy next year are reachable. However, many people believe we are now in the zone of "political games" ahead of the general election next year. After setting out more optimistic hopes than any other economic forecasting association around the world it would dent the UK government's credibility if it was to backtrack so soon. However, we can expect a softening off expectations and forecasts as 2009 continues rather than an abrupt change in forecasts which could lose more votes for the UK government.
Economic forecasting in the current environment is near impossible as there are many unknown factors which could impact upon any calculations.
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