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.