BOE persistently wrong

Graham_Devon

Ahhh, one of my long standing gripes, and now an independant report has been made into the BOE inflation and growth forecasts, which has led to the BOE admitting they are generally "more wrong than anyone else".

The Bank has faced questions about its forecasting record in the past, but an independent review has provided the first clear evidence it has been more persistently wrong than its peers.

A review by former US Federal Reserve economist David Stockton also said a cultural change might be needed at the Bank. He said the Bank needed to cultivate “a more assertive and experienced staff” who would “seriously challenge” policymakers.

Mr Stockton found that, since 2008, the Bank’s “performance has been marginally worse than that of outside forecasters...

characterised by persistent overprediction of growth and persistent underprediction of inflation”.

Accuracy is vital as the Bank bases its interest rate decisions on its outlook for growth and inflation.

On growth specifically, Mr Stockton added: “The forecast errors of the ECB [European Central Bank] and Fed have been less marked in the period since the global recession receded.”

Obvoiously, some would prefer to keep the over optimistic forecasts, not least the government who can use these forecasts to create more favourable budgets...however, the review stated that all forecasts has been "noticably worse" since the crash....leading to notably persistent overly optimistic forecasts.

http://www.telegraph.co.uk/finance/economics/9649690/Bank-of-England-admits-its-forecasts-are-worse-than-peers.html

It's also stated by the auditors that they need to open up to a broader range of views, allowing alterior views room to breath.

I guess this report gives us a good indication as to why Merv was so much more pessamistic in his last report, leading to comments on here over how his mood towards stimulus seemed to have radically changed.

purch

Graham_Devon wrote: »

Ahhh, one of my long standing gripes

It was 14 long standing gripes at the last count I think, or is it more :eek:

Graham_Devon

purch wrote: »

It was 14 long standing gripes at the last count I think, or is it more :eek:

Thirty four.

My latest is Merv stating "if we keep pumping liquitidy in, were borrowing not from tommorow, but from today, and soon, yesterday".

The next day the BOE states in reference to a different body "we stand poised to inject more QE".

Generali

Graham_Devon wrote: »

Ahhh, one of my long standing gripes, and now an independant report has been made into the BOE inflation and growth forecasts, which has led to the BOE admitting they are generally "more wrong than anyone else".

Obvoiously, some would prefer to keep the over optimistic forecasts, not least the government who can use these forecasts to create more favourable budgets...however, the review stated that all forecasts has been "noticably worse" since the crash....leading to notably persistent overly optimistic forecasts.

http://www.telegraph.co.uk/finance/economics/9649690/Bank-of-England-admits-its-forecasts-are-worse-than-peers.html

It's also stated by the auditors that they need to open up to a broader range of views, allowing alterior views room to breath.

I guess this report gives us a good indication as to why Merv was so much more pessamistic in his last report, leading to comments on here over how his mood towards stimulus seemed to have radically changed.

Hi GD, I hope all is well.

Where do you think RPI & CPI will be in 2 years time and why? It might be interesting to compare your predictions with those of the BoE.

Graham_Devon

Generali wrote: »

Hi GD, I hope all is well.

Where do you think RPI & CPI will be in 2 years time and why? It might be interesting to compare your predictions with those of the BoE.

Hello Generali.

I know where you are going with this, so I'll answer the underlying question rather than the question posed to lead us there.

I couldn't do better than the BOE. So let's get that one out of the way. I don't have £68m a year to hand and copious data sets to look into stuff and make a forecast. I have, however, until this year, been predicting higher inflation for the last 3 years than the BOE. I still deny their growth forecasts. You'll see me over the last 3 years on record here doing so....as you are aware.

BUT, that does not really excuse some of the findings in the report, and it doesn't excuse some of the more obvious, somewhat, impossibly overly optimistic reports on growth and inflation.

The BOE have been stating for 4 long years that inflation will hit target. That's fine, but they didn't realign their stance with what was actually going on. If they had done that, instead of persistently insisting we would hit target, there would be no issue.

And what's with the massively optimistic growth forecasts? I don't think they had anyone, bar the government agreeing with them, and, as history shows, every single one has been wrong by some large amounts.

A lot will come out when Merv leaves...that's my theory anyway. The BOE themselves have been publically worrying about their credibility, but have done little to look at that issue....so my belief is that they know they are wrong, they know their forecasts will be overly optimistic, and are trying to cover themselves. It doesn't make sense that Merv publically states something in a press conference and then goes and says something else the very next day.

MacMickster

Mr Stockton found that, since 2008, the Bank’s “performance has been marginally worse than that of outside forecasters...

I don't think that we should be too critical that the BOE's forecasts have been marginally worse than the average forecasts of other economists. We merely tend to notice how wrong the BOE have been, far more than we notice most other forecasters.

What really does concern me is the inaccuracy of economic forecasting in general, yet governments the world over rely on these forecasts to either justify their own (usually idealogical) policies or to attack those of their opponents. Economists are given the status of scientists, when they are merely artists painting a picture which is no more than an illusion.

Once economists are given this status, their every word can be followed by those in power, even when this appears totally at odds with common sense. This can be akin to some motorists who will try to take their cars across a flooded river, believing their sat-nav over the evidence of their own eyes when it tells them that what they see is merely a passable ford.

Wookster

oops, wrong thread.

Rinoa

Generali wrote: »

Hi GD, I hope all is well.

Where do you think RPI & CPI will be in 2 years time and why? It might be interesting to compare your predictions with those of the BoE.

Nice try, but you didn't really expect an answer did you?

PaulF81

They are wrong but what's the other option?putting rates up now would be suicide.

To be fair, the effects of QE are difficult to project.

Lets not forget, stability is another target of the BOE and projecting significant rises in CPI/rpi would kill us on the international markets. If rates can't rise, what's the point of trashing the markets with higher rate predictions. Far more to it than raw data Graham.

Graham_Devon

Rinoa wrote: »

Nice try, but you didn't really expect an answer did you?

This report is looking at past performance.

All my past predictions are on the forum for public scrutiny.

I don't see what benefit it brings to the dicsussion, or the report, to put a forum member up against the BOE for future predictions, when everything in this discussion is about past performance. It has little relevance other than personal issues....which is precisely why we end up here trying to take a report by an independant body, but question me.

It's also much harder now to make a prediction, which is why I stopped some months ago. But this is the very point. It WAS very easy to use common sense and disregard the BOE's forecasts, which is why someone like myself was doing it. That's the point of the report.

Graham_Devon

PaulF81 wrote: »

They are wrong but what's the other option?putting rates up now would be suicide.

To be fair, the effects of QE are difficult to project.

Lets not forget, stability is another target of the BOE and projecting significant rises in CPI/rpi would kill us on the international markets. If rates can't rise, what's the point of trashing the markets with higher rate predictions. Far more to it than raw data Graham.

This is about growth and inflation forecasts, not interest rates.