Chancellor Proposes Cutting OBR Forecasts to One Per Year
Chancellor Keanu Reeves has proposed reducing the Office for Budget Responsibility's (OBR) annual forecasts from two to one. This change aims to align with the government's goal of having only one major fiscal event per year.
The OBR currently produces forecasts at least twice a year, a practice that started in the 1970s and is considered international good practice. However, Reeves suggests that moving to one forecast per year could help the government stick to a single fiscal event. Last spring's OBR forecast led to new policy measures, supporting Reeves' argument.
The optimal frequency of forecasts depends on balancing the marginal benefit of new information against the fixed costs of production and communication. More frequent forecasts may risk investors and policymakers placing too much weight on potentially noisy updates, as suggested by 'global games' literature. A literal state-contingent approach is operationally impractical and could destabilize expectations, making a hybrid approach more suitable.
Reeves' proposal to reduce the OBR's forecasts to one per year aims to simplify the government's fiscal calendar. While this change could reduce public information and potentially signal negatively to investors, the government believes it will help maintain a clear fiscal focus. The OBR's forecasts, with average six-monthly changes of around 1 percentage point of GDP for the deficit and nearly 4 percentage points for debt, often contain significant news, making the frequency of forecasts a crucial consideration.
