Chief economist of Bank of England admits errors in Brexit forecasting … Andrew Haldane says his profession must adapt to regain the trust of the public, claiming narrow models ignored ‘irrational behaviour.’ The Bank of England’s chief economist has admitted his profession is in crisis having failed to foresee the 2008 financial crash and having misjudged the impact of the Brexit vote. -Guardian
The top economist at England’s chief central bank has said economists are often wrong. He called critisisms about lack of accuracy in forecasting a “fair cop” and said the industry would have to do a better job.
Andrew Haldane, said it was “a fair cop” referring to a series of forecasting errors before and after the financial crash which had brought the profession’s reputation into question.
Blaming the failure of economic models to cope with “irrational behaviour” in the modern era, the economist said the profession needed to adapt to regain the trust of the public and politicians.
Before Brexit, the actual head of the English central bank, Mark Carney, said that agreeing to Brexit would cause grave economic problems, So far that hasn’t happened yet. Then there was Lehman Brothers, which was supposed to have little impact on England. Instead it had a lot.
Haldane was speaking at the Institute for Government in central London. Despite his negative message, he was upbeat. He believed that economic forecasting could improve a good deal.
Nonetheless, Haldane is bothered by criticisms and is worried forecasts will not be taken seriously if they continus to be wrong,
Former Tory ministers, including the former foreign secretary William Hague and the justice secretary Michael Gove, last year attacked the Bank of England governor, Mark Carney, for predicting a dramatic slowdown in growth if the country voted to leave the EU.
The statement regarding Brexit’s bad effects was even taken as hoax by such individuals as Treasury’s Boris Johnson. Boris was pro Brexit. He said the chief central banker was criticizing Brexit just to make it sound bad.
Prime Minister Theresa May, criticised the bank as well. The bank should not have cut rates and boosted stimulus after the vote. It later turned out the economy was OK without the stimulus.
Haldane admitted the bank did not project such economic strength. But he also believed the timing was off, not the underlying forecast.
“I think, near-term, the data, the evidence we’ve been accumulating since the referendum, has surprised to the upside. [There’s been] greater resilience, in particular among consumers and among the housing market, than we had expected. Has that led us to fundamentally change our view on the fortunes of the economy looking forward over the next several years? Not really.”
And he is said to have added: “This is more a question, I think, of timing than of a fundamental reassessment of the fortunes of the economy. So back in November we published a forecast for inflation which was the highest we’ve ever published. And the forecast for growth in the UK economy, that was the lowest we have ever published. We are still expecting this rather difficult balancing act for monetary policy with a slowing, not a huge slowing, but nonetheless a material slowing, during the course of next year as the effects of higher prices in the shops begin to chew away a little at the spending power of consumers and cause them to rein back a little in their spending.”
He even blamed British citizens for a lack of numeracy. So we can see that Haldane may want to cast the net of blame a good deal wider than just central bank affililiated economists.
In truth when it comes to economics, especially as it pertains to central banks, Haldane is mostly if not entirely wrong. The Bank of England is basically a government monopoly. Economists affiliated with it will certainly take positions agreeing with it.
The Bank of England was pro EU and thus apt to foresee some sort of calamitous event if Brexit passed. You won’t get a full range of predictions until the bank ceases to be a monopoly and economists don’t feel the need to answer in a certain way.
Conclusion: Until then, Haldane can say whatever he wants but important economists will continue to make forcasts that favor the English central bank for the sake of their jobs and promotions. As central bank outlooks continue to worsen, forecasts among many senior economists will grow even more inaccurate as a result.