Bloomberg News

OBR Blames Local-Authority Data for U.K. Budget-Forecast Error

October 13, 2011

Oct. 13 (Bloomberg) -- Better data on spending by U.K. local authorities would make it easier to forecast the public finances, the government’s budget watchdog said.

In an analysis of its own forecasting record published in London today, the Office for Budget Responsibility said an overestimate of local-authority spending accounted for a third of the error in projecting the budget deficit in the year that ended in March.

The Office for National Statistics cut its estimate of the deficit for 2010-11 by 5.9 billion pounds ($9.3 billion) last month to 136.7 billion pounds, saying the bulk of the change related to better-than-expected finances at local authorities.

In June 2010, the OBR predicted a deficit of 149 billion pounds for the period. The overestimate of 12 billion pounds was slightly lower than the average error in official forecasts in the last 10 years, it said. Quarterly estimates of local- authority spending that became available for the first time recently should improve the accuracy of its projections, the watchdog said.

“Keeping track of the income and spending of local authorities has long been one of the biggest challenges in preparing public-finance forecasts,” OBR Chairman Robert Chote said in a statement. “New quarterly data should help, especially once we have a long enough run of data to understand the patterns during the year.”

Chancellor of the Exchequer George Osborne created the OBR after the Conservative-led government took office in May 2010, saying he wanted to rid forecasting of political interference. The watchdog produces twice-yearly forecasts for the Treasury and monitors fiscal policy.

Chote said in a speech last month that the OBR will cut its growth prediction for this year. Economists’ forecasts compiled for the Treasury indicate it is also likely to increase its deficit projection for 2011-2012, currently 122 billion pounds. The budget office is due to publish new forecasts on Nov. 29.

--Editors: Eddie Buckle, Jennifer M. Freedman

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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