I warned you I’d forecast a scenario

Wednesday 15th April 2020

Two million on the dole and the economy to shrink by 35% .That  stark warning  from the Office for Budget Responsibility gave tasty headlines and had the official stamp of authority as the Chancellor  passed on the ‘serious implications’ message .

One report had this: the Chancellor “stressed that the forecast was only one possible scenario’.

Forecast, warning, scenario – which ? 

Simon French, chief economist at Panmure Gordon, told me on The Business Breakfast on JazzFM ( jazzfm.com) that ‘this is a scenario, not a forecast. It’s important to distinguish between the two – a forecast suggests you know what’s going to happen. Anybody who thinks that know what’s going to happen economically at the moment is probably deluded, and needs to go back to bed.’

On our way upstairs, let’s pause at the landing. Of the economy, that is. The OBR also pointed towards a quick recovery, the upward direction of the V shaped sharp fall and then quick recovery. Simon French thinks otherwise, for two reasons.

“First, it’s much easier to fire than to hire – employers are unlikely, unless they are given substantial incentives, to hire at the same rate as before. Secondly there are a lot of businesses which have built up significant debts over this period…when balance sheets are heavily indebted the incentive to expand and grow diminishes.’

So, are there any islands of semi – certainty amid the swampiness of scenarios and the fog of ‘forecasts’? Maybe there are two.

First, whatever damage has been done was not because of a systemic failure of the financial system, which caused the 2008 crisis. There’s been a forced shuttering. Consumers will still need to buy. There will be change, but nothing fundamental. Dystopia has not dawned yet.

Second, the old maxim is still alive, until further notice. No good company goes bad overnight – provided investors sit on their hands. As most long term shareholders are doing as we speak. 


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