Embarrasing for the BOE?

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quarkyquarky Frets: 2241
edited January 18 in Politics Economics
Mark Carney’s intervention during the Brexit campaign, when the Bank of England governor warned that Britain’s exit from the EU could spark a recession, is well known. The bank’s economic forecasts post-referendum have received less attention.
In August 2016, the bank produced updated forecasts. Exports in 2017 would be down 0.5 per cent, despite the strong boost they had received from the devaluation of sterling. Looking at the year-on-year figures for the third quarter, in practice they are up 8.3 per cent. Over the same period business investment in 2017 would be down 2 per cent. Yet, in the most recent Office for National Statistics figures, it is up 1.7 per cent. Housing investment would be down 4.75 per cent. Looking at the most recent data (end September), it is actually up 5 per cent year-on-year. Employment growth would be zero. In reality, it is up 1 per cent from already very high levels.The bank’s forecasts were so far adrift as to be embarrassing. And because the Bank of England not only makes predictions but also sets monetary policy, poor forecasting can lead to poor policy. Those errant forecasts provided the rationale for last year’s emergency cut in interest rates and additional quantitative easing that were, with the benefit of hindsight, unnecessary.

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Wow. Pretty surprised at the difference to be honest. The cut in interest rates and quantitative easing must have helped inflation up. 


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  • HeartfeltdawnHeartfeltdawn Frets: 11019
    2017 wasn't the stagnant year some like the BoE had forecast. The way this year has started though, Toys r Us to Carillion, is worrying. EY were predicting a rise in unemployment for 2018. Most forecasts for wage growth are poor. 

    One aspect of the article. Marshall highlights the anti-Brexit bias within the BoE as he sees it. Here is a man though who donated a large sum of money to the Leave campaign and who made $10 million on the result. Why is he any less biased?   



    I make Jeremy Paxman look like Fingermouse. 
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  • quarkyquarky Frets: 2241
    Yep, I agree, there is little written anywhere without an agenda, and those stats are not doubt cherry picked. But I was still surprised to see, in black and white, just how wrong the BOE was. And the other point in the article about talking us into a recession is a good one too. 

    How much economic damage has been done by people like this?
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  • HeartfeltdawnHeartfeltdawn Frets: 11019
    From the article:

    "Yet, is it not equally likely that just as the uncertainty of the past 18 months has held back inward investment, a clearer outlook for Britain’s future will unlock pent-up investment demand? And maybe there will even be a boost to consumer confidence when our political leadership is finally able to articulate a vision for the country?

    The BoE seems to have settled on a new pessimism about inflation remaining above target, based on the supply-side effects of Brexit. Yet this is allied to an assumption of weaker real income growth. How can lower labour force growth lead to higher inflation risks and lower real income growth? In forecasting terms, the bank seems to doubling down on pessimism."

    Going by Marshall's stats, inward investment hasn't held back over the last 18 months so presumably he suggests that the clear outlook will unlock even more investment. If so, then the key to that clear outlook isn't something the BoE can supply: that has to come from the leadership of this country giving us a clear outlook. The assumption over weaker income growth: that is also assumed by the EY Item Club and several other economically minded persons. The Office for Budget Responsibility expects the unemployment rate to rise over the next five years. I agree that talking us into a recession is a bad thing but equally over-optimism whilst there are a lot of dodgy signs around us doesn't help. 

    I make Jeremy Paxman look like Fingermouse. 
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  • Jock68Jock68 Frets: 149
    Carney,has been a consistent failure over all of the years he has had the job, his forecasts have been proved wrong many times.  Last year he started telling us almost every month that the Interest rate was going rise, he eventually got it right.

    His last Major failure has yet to come to fruition, you better hope that it does not.  He carried out a Bank Stress Test and all banks passed.  This test was based on the Capital and Asset value that each of the banks held.  Banks were allowed to Register their Assets at their current Book Value.   That is like you valuing that guitar you have at £1000 and then when everyone loses their job you try to sell it to get some money.   Surprise Surprise, I can tell you that all of us would be selling our guitars, and no one would pay you £1000 for your guitar.  In that type of event you may be lucky to sell your guitar, you may get a few £hundred. 

    That is Reality, so when you transfer that reality into a Bank Crash I can assure you that when those Banks go to sell those Assets they will never realise their book value, they will get their Fire Sale Value Book value.

    And the result..... all the Banks go Bust.... So the Bank Stress test should have used Fire Sale Value for most of those Bank Assets... and if they had done that then every single one would have failed the Stress Test.

    So keep everything crossed and get ready to tell the Government that we will not Bail out the Banks again.
    Jock
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  • HeartfeltdawnHeartfeltdawn Frets: 11019
    Jock, given your libertarian stance, hating Carney is no surprise. Of course they used book value just as you value your house at current book value when it comes to paying home insurance rather than declaring the value of your house should we end up in a  thermonuclear apocalyptic waste ground. 

    The example you posit with selling a guitar: perhaps it's true if everyone in the entire world lost their job and the various systems of currency all collapsed in a nanosecond. I personally wouldn't be selling my guitar in such a scenario as I'm damn well playing acoustically right until the collapse of civilisation as we know it. 

    It hould also be pointed out that the annual stress test has been carried out since 2014 and 2017 was the first time that all major banks passed. 
    I make Jeremy Paxman look like Fingermouse. 
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  • p90foolp90fool Frets: 8320
    Trying to find an impartial expert on Brexit is like trying to pick a Jury for a Michael Jackson trial, it's just impossible. 
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  • GarthyGarthy Frets: 1689
    Jock, given your libertarian stance, hating Carney is no surprise. Of course they used book value just as you value your house at current book value when it comes to paying home insurance rather than declaring the value of your house should we end up in a  thermonuclear apocalyptic waste ground. 

    The example you posit with selling a guitar: perhaps it's true if everyone in the entire world lost their job and the various systems of currency all collapsed in a nanosecond. I personally wouldn't be selling my guitar in such a scenario as I'm damn well playing acoustically right until the collapse of civilisation as we know it. 

    It hould also be pointed out that the annual stress test has been carried out since 2014 and 2017 was the first time that all major banks passed. 
    His example is in effect a description of the American sub prime crash.
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  • HeartfeltdawnHeartfeltdawn Frets: 11019
    edited January 19
    At what point did everyone lose their jobs leaving a lack of buyers for defaulted property though?
    I make Jeremy Paxman look like Fingermouse. 
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  • ESBlondeESBlonde Frets: 2297
    It was pointed out by someone of R4 the other morning that we haven't left the EU yet, so while there was some speculation and downward currency movement immediatly following the vote (some say it was overvalued anyway), we have yet to see the true effects of whatever gets agreed in the divorce settlement.
    My own feeling (and it's no more than that) is that we will have less growth in the first 5-10 years after the vote than if we'd stayed in. However I think in the 10-20 years following the reverse might be true and Great Britain plc will forge ahead and may well gain new partners in other ex EU member states.
    Of course we don't know and because the stage isn't even set yet we can't really begin to calculate.
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  • jellyrolljellyroll Frets: 2127
    Economic growth forecasts are so rarely right (except of course that they are "re-forecast" every two minutes so that they appear right by the time the period in question has elapsed) that a monkey with dice could just as accurately pull out a number. 
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  • Phil_aka_PipPhil_aka_Pip Frets: 8779
    Economics is bollox. So are their forecasts. Their "best" use is as a scare tactic to make people vote the way the scaremongers want them to vote. It doesn't always work, but it's capable of reducing a majority.
    "Working" software has only unobserved bugs. (Parroty Error: Pieces of Nine! Pieces of Nine!)
    Seriously: If you value it, take/fetch it yourself
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  • ToneControlToneControl Frets: 4062
    edited January 25
    Whilst Economics is a worthy academic discipline, it is not a science.
    Intelligent people take decisions and handle risk when advised by competent, proven economists.

    The problem is when people imagine that all economists can provide scientific, accurate predictions

    I was especially disappointed to see some of the extremely naive economic models published over the last 2 years, which showed a such ignorance and lack of foresight that I would have hoped they would have been given low marks if presented as an undergraduate dissertation 
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  • Phil_aka_PipPhil_aka_Pip Frets: 8779
    I scrape passed Economics A level with an E grade (the lowest pass possible at the time). My exam paper was BLX and i hadn't done any of the homework. I eckon that if I had done the homework I could have used some stock phrases that would have given the impression that I knew what I was talking about, or quoted some big names (Economists, or Politicians) ... and still have said not much more than what I actually wrote in the exam - but I'd have got a better mark for it.

    I question the existence of "competent, proven economists" when every one you ask gives yiou a different answer, or the answer they give you is dependent on their personal political viewpoint.
    "Working" software has only unobserved bugs. (Parroty Error: Pieces of Nine! Pieces of Nine!)
    Seriously: If you value it, take/fetch it yourself
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