RISKS AND UNCERTAINTIES

1.77 All forecasts are subject to risks and uncertainties. Average errors from past forecasts, shown in Table 1.8, are one illustration of their possible extent. The errors usually increase the further ahead the forecast looks. Obviously, errors on any individual forecast may be larger or smaller than the average.

1.78 GDP growth in 1995 was lower than expected this time last year, largely due to weaker than expected fixed investment, but the error was small by historical standards. The forecast of GDP growth in 1996 has been revised down by 1/2 percentage point since the Budget forecast. Retail price inflation in 1995 was in line both with last year's Summer Economic Forecast and the Budget forecast, although both producer output prices and the GDP deflator have turned out lower. The forecast of RPI ex MIPs inflation at the end of 1996 is unchanged from the Budget forecast. The forecast of the current account deficit for this year has been revised down since the Budget in the light of recent revisions to past data. The outturn for the 1995-96 PSBR was around 3 billion pounds above the Budget forecast. The PSBR for the current financial year is now expected to be 4 1/2 billion pounds higher than the Budget forecast.