Summary: Our annual Clash of the Titans economic forecasting competition is taking place tomorrow night (the 18th December), so we've taken a look back at last year's predictions and how they compared to what actually happened.
What does the chart show? For each of the four charts, the solid black line shows the previous information that the forecasters were armed with when they made their predictions, while the dotted black line shows the actual outcome. The three coloured lines represent the three official forecasts - dark blue for Oxford's Stephen King, light blue for Cambridge's Kevin Daly (who won the competition), and yellow for LSE's Ros Altmann. The dark red lines represent the average forecasts by the public, with the progressively lighter red areas showing the range of forecasts from most popular to least popular.
Why is the chart interesting? This time last year, growth was beginning to look more positive, with steady inflation between 2.5% and 3%, and gently falling unemployment. Average earnings were low, even by post-recession standards, and there was some uncertainty over whether the recovery would last and what shape it would continue to take.
GDP growth was the category that our public average came closest to, with most people predicting steady growth at around 0.75% a quarter. They didn't quite get the shape right, but the average forecast was certainly in the right range. By contrast, our three Titans were less close, with Kevin Daly and Stephen King under-selling the UK economy, and Ros Altmann appearing far too optimistic. However, for the other three categories, most forecasts were way off.
The speed at which inflation dropped off surprised everyone. Most people thought there would be a small initial drop before price growth levelled off around 2%, with hardly anyone predicting that it would fall to below 1.5% by the third quarter of 2014. Unemployment was even more of a shock: again, most forecasters (including our three experts) predicted a continuation of the gentle decline in unemployment rates that we had been experiencing for a couple of years. Nobody thought the UK would see a drop from 7.5% to 6% in 12 months. However, it wasn't all good news on the labour market. Our average forecast on earnings growth was more conservative than two out of three of our Titans, but it was still far too optimistic. Kevin Daly was the closest, and the fact that he managed to predict the drop in Q2 2014 probably won him the competition.
Any scorecard for the UK economy in 2014 would probably represent these findings - growth has been on par, with an unexpected fall in inflation (mostly due to global factors) and an impressive decline in unemployment, but earnings continued to disappoint, even by the adjusted expectations set in 2013.
This year, we have invited a different set of Titans to give their thoughts on the UK economy next year (Kate Barker, representing Oxford; John Llewellyn, representing Cambridge; and Michael McMahon, representing LSE). If you would like to hear what they have to say for yourself, there are still a few tickets remaining for the event tomorrow night, which you can read more about here. If you think you can do better than last year's competitors, you can enter our forecasting competition for free here.
This will be our last Chart of the Week for 2014. We'd like to wish all our readers a merry Christmas and a happy new year, and we'll be back on 7th January.