Bank of England Inflation report: Charting 5 years of abject failure
So we got the Bank of England’s Inflation report this week, and what stands out more than anything else is that the Bank of England, when it comes to trying to forecast GDP or inflation, is a complete and utter abject failure. Something we’ve discussed before here and here.
If the BoE were a private forecasting company they would’ve been shut down years ago after performing so poorly year after year.
First up let’s take a look at the BoE’s ability to try a forecast GDP.
So even as little as just one year ago the BoE was predicting that GDP growth would be around the 2.5-3% range today. Fast forward just one year and in actual fact GDP growth is contracting 0.7%. So just a near 4% discrepancy there then.
Also note how steeply the BoE see GDP to come roaring back over then next 6-9 months. They basically see GDP around the 2.5% level at the start of 2013. This raises the rather obvious question, if the Bank of England have proved to be some of the poorest forecasters on the planet why on earth should we believe them now when they say that GDP will miraculously come storming back in the next few months?
The BoE also bang on about how tough it is to forecast GDP, the latest report says the following:
The outlook for UK growth remains unusually uncertain… But the threat of these more extreme outcomes is likely to continue to weigh on UK economic activity over the forecast period, for example through its effect on asset prices and confidence. This dampening effect is captured in the MPC’s projections.
Just to put that toughness into perspective when it comes to forecasting, here’s what we had to say about UK GDP around the time of the August 2011 inflation report:
We predict that by the end of the year the UK will officially be back in recession – leaving Osbourne et-al scratching their heads as to why they can’t ‘grow’ out of the problem of too much debt.
It makes for some ugly reading and suggest that our prediction that the UK will officially be in re-recession by the end of 2011 look very credible.
The economy is skirting dangerously close to re-recession and those bumper tax revenues are likely to miss expectations in the second half of the year as the UK consumer feels the pinch, thanks to higher taxes and the tax of inflation. There is even talk about cutting VAT back to 17.5% – which would instantly reverse the revenue take.
See, it really isn’t that difficult, you just have to have a very basic grasp of economics – something worryingly the BoE is totally bereft of.
So what about CPI inflation, how has the BoE fared on that front in the past years?
So once again the BoE has year-in year-out got it completely wrong when trying to predict when they would be back to their governmental legal requirement of 2% CPI inflation “at all times”.
Oh, and just in case you think this disease of being hopeless forecasters with a terrible understanding of basic economics is British phenomenon, here are their US counterparts proving they can match any economic illiteracy that Melvyn King can throw at them.
Related posts:
- Bank of England see CPI inflation falling to target by the end of next year… possibly/maybe
- Bank of England: Inflation by 2013 could be 4%… or minus 0.5% – take your pick
- As the CPI falls for a third month the Bank of England has still produced 41% more price inflation than they should
- Bank of England releases Financial Stability Report: calls the environment “exceptionally threatening”
- Bank of England Minutes: All aboard the Inflation Express
Link to this article: : http://www.goldmadesimplenews.com/analysis/bank-of-england-inflation-report-charting-5-years-of-abject-failure-7578/
Posted by Thomas Paterson on Aug 9 2012. Filed under Analysis.
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