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Speaking at an event at the Institute for Government on Thursday, Andy Haldane admitted economic forecasting was “in crisis” and failed to warn adequately about the financial crisis. It was a “Michael Fish moment” he said, a reference to the weather forecaster’s dismissal of the possibility of a hurricane hitting the south of England in 1987.
Hours later the storm did hit, causing widespread destruction and casualties. But he insisted the central bank’s gloomy outlook on the effect of a Leave vote was still justified and the forecasting problem in this case was a “timing effect”.
Before the EU referendum, Mark Carney, BoE governor, had warned of the possibility of a “technical recession” after a vote for leave. In August, the bank said it expected the economy to stagnate in the second half of 2016.
The latest data show healthy growth of 0.6 per cent in the third quarter and surveys indicate little or no slowdown in the fourth quarter either. The BoE still sees the economy weakening substantially in 2017. In line with most independent forecasters, its central projection shows growth slowing from 2.2 per cent in 2016 to 1.4 per cent this year.
Mr Haldane still stuck to the central bank’s latest assessment of a slowdown this year as higher import prices from weaker sterling squeeze household finances. “This is more a question of timing than of a fundamental reassessment of the fortunes of the economy,” he said. “There has been more resilience among consumers and in 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,” Mr Haldane said. [...]
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