How Can We Strengthen the OBR's Forecasting?
SUMMARY
There is a growing gap between transparent, expert-led policy analysis and the political objectives of government officials—especially when those objectives involve structural reforms aimed at long-term growth.
The 2022 mini-budget crisis is a clear example of this trend: by sidestepping independent fiscal scrutiny, the government triggered market instability, which only eased after the OBR’s re-engagement helped restore credibility.
Institutions tasked with evaluating government policy often face limitations. Their modelling tools are not well-suited for assessing the long-term impacts of reforms targeting productive capacity. This weakens trust in forecasts and frustrates policymakers, who feel constrained in their ability to pursue structural change.
This is partly reflective of a widening divide between the needs of these organisations and cutting-edge macroeconomic research, which limits how much these forecasts reflect consensus in the discipline. As the evidence base evolves, traditional forecasting methods lag behind, making empirical research less useful in informing policy projections.
We propose bridging the gap between academic research and public policy through the following steps:
- Create a talent pipeline with academia
- Collaborate with the UK’s macroeconomic centres of expertise
- Reform institutional incentives to protect the OBR’s independence
These targeted investments—costing approximately £2.9 million annually—would strengthen the UK’s capacity to evaluate bold policy reforms while preserving rigorous fiscal oversight.
CHALLENGE & OPPORTUNITY
In September 2022, as the bond market reacted negatively to the newly elected government’s proposed mini-budget and the pound sank to $1.03, a crisis quietly gripped the institutions tasked with macroeconomic policy and governance. Chancellor Kwasi Kwarteng introduced a sweeping £45 billion tax-cutting package, bypassing the customary forecasts from the Office for Budget Responsibility (OBR), despite the organisation’s offer to provide an impartial assessment.
Sidestepping the OBR marked a notable shift from the recently-established norm of consulting expert bodies for unbiased evaluations of fiscal policy changes. The government claimed forecasts were unnecessary for their “mini-budget,” yet the market’s swift reaction suggested otherwise. Despite its temporary snub, the OBR’s robust reputation remained, and they ultimately helped to stabilise the economy when asked to provide an assessment weeks later.
The episode illustrates how demands for transparent, expert-driven policy analysis can often conflict with the objectives of elected (and unelected) officials. Some elected officials might feel that current analytical tools fail to reflect the transformative potential of their plans – a concern gaining traction as governments begin to tackle barriers to expanding infrastructure and housing. Delivering on such commitments could have economic impacts that existing frameworks, developed at a time marked by a decline in the rates of public and private investment in physical infrastructure, can struggle to capture.
This is important when it comes to the OBR. The modelling tools it uses are somewhat dated and aren’t designed to handle the longer-term implications of transformative proposals on infrastructure. Its existing framework can capture the effect of small changes in policy relatively well, but is not suited to estimating the effect of wholesale changes in policy. This could create a vulnerability that allows officials to cherry-pick forecasts that support greater fiscal flexibility, while downplaying less favorable projections—an approach many saw on display during the mini-budget episode. Worse still, it could bias policymakers away from truly transformative policies in favour of slight tinkering with the status quo.
There is also a growing divide between the practical needs of policy appraisal bodies like the OBR and the insights emerging from cutting-edge macroeconomic research. This divide matters because first, advanced macroeconomic models—like those with complex financial frictions or different types of agents—are better suited to assess structural reforms; second, much of the field’s growing empirical evidence is based on these kinds of models. As the disparity widens, producing reliable short-term forecasts for policies with extended timelines becomes ever more difficult.
The OBR’s hard-earned fiscal credibility remains intact, yet it confronts challenges that could erode its future influence. It needs to deepen its connection to the research frontier to enhance its capacity to address officials’ priorities, evaluate ambitious supply-side reforms, and enable it to more directly speak to the growing body of empirical evidence on what matters in macroeconomics.
@article{shah2025obr,
title={How Can We Strengthen the OBR's Forecasting?},
author={Shah, Rohan and Ser{\^o}dio, Pedro},
journal={UK Day One},
url={https://ukdayone.org/briefings/how-can-we-strengthen-the-obr-s-forecasting},
year={2025}
}
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Authors
Rohan Shah
Assistant Professor of Economics at the University of Mississippi. His research focuses on the interplay between firms’ decisions to invest in R&D or physical capital, and the implications for the aggregate economy, firm lifecycles, and recoveries from recessions. Prior to joining Ole Miss, he earned his PhD from The Ohio State University and worked at a boutique economic consultancy specialising in antitrust, leading teams on cases such as Google/Waze and Dow/DuPont.
Pedro Serôdio
Pedro Serôdio is Chief Economist at UK Day One. He was previously Head of Analysis at the UK’s Office for Life Sciences, leading a team that provided economic analysis and produced official government statistics in one of the UK’s key growth sectors. Before that, he held academic positions at the Universities of Warwick, Middlesex, and Essex, specializing in macroeconomic policy.