Monday, March 19, 2012

It is a while since I have updated the forecasts produced by my neural network model for the UK. Over the last few weeks, a number of indicators have suggested that there are increasing grounds for confidence.

The forecasts produced by my model do not back this up - indeed they suggest that we may need to wait till the first half of 2013 before we see growth re-establishing itself. After a slight upward blip (round about now), the model predicts that the rate of growth of output will dip back down. Once growth resumes, it rises quite sharply to around 2% per year.

The forecast is, of course, based only on limited information - about industrial output. It is not sophisticated enough to include information about policy shocks - changes in the behaviour of the European Central Bank, the successful Greek debt renegotiation, and so on. It therefore looks, to me, to be a pessimistic forecast. But it may serve, if nothing else, to remind us that times are still uncertain, and there remain some serious downside risks.