The Bank of England’s economic forecasting ability is in the spotlight again as several officials, including the governor Mark Carney and the Bank’s chief economist, Andy Haldane, have this week been grilled by The Treasury Select Committee. The questioning follows the Bank’s inflation revisions earlier this month and further industry criticism about its ability to get basic economic forecasts right.
A report published by the Bank’s Independent Evaluation Office (IEO) at the end of 2015 found large forecasting errors in the Bank’s projections, as well as a tendency for some two-year projections to be less accurate than its short-term forecasts. The IEO summarised that some of the Bank’s numbers had more errors than private sector projections or those published by other central banks. At that time the Bank pledged to perform more regular evaluations and consult outside experts more frequently.
This week, Haldane told the Treasury Select Committee members that its recent mistakes, such as misjudging the immediate economic effect of last year’s Brexit vote, were not on the same scale as the mistakes made in the run-up to the financial crisis nearly a decade ago. He acknowledged that “sizeable” economic forecasting errors had been made in the past, especially at the time of the 2008 financial crisis but said now “The Bank of England has made big improvements in its ability to forecast the UK economy.”
Haldane said more forecasting errors were likely or possible, though not on the same scale as before.
Another official, Gertjan Vlieghe, a member of the Bank’s Monetary Policy Committee, told MPs that the Bank will not be able to forecast the next financial crisis or recession “Our models are just not that good.” He added that “there was not one model which is right or wrong and that people had unrealistic expectations of what we’re going to get from economics in the next five years.”