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Bank of England says economists in ‘crisis’ after crash and Brexit

Haldane-Andy-BoE[1]

Bank of England chief economist Andy Haldane says economists are “to some degree in crisis” after failing to foresee the 2008 financial crisis and the impact of the Brexit vote.

In a speech at the Institute for Government in London yesterday, Haldane compared economists’ failure to predict the 2008 financial crisis to former BBC weather presenter Michael Fish’s inaccurate forecast before a storm hit the UK in 1987.

According to a BBC report, Haldane said the “rather narrow and rather fragile” economic models were fine while the economy was good but they had not coped when things were “tipped upside down” by the 2008 financial crash.

He said: “Could we find a way out of the trap? Of course we could. Let’s go back to a different crisis, which is the crisis, not in economic forecasting but in weather forecasting, that resulted from the 1987 storm.

“Remember that? Michael Fish getting up: ‘There’s no hurricane coming but it will be very windy in Spain.’ Very similar to the sort of reports central banks – naming no names – issued pre-crisis, ‘There is no hurricane coming but it might be very windy in the sub-prime sector’.”

Haldane pointed to how weather forecasting had changed following Fish’s 1987 forecast including the increased use of data that has transformed weather reporting.

He said: “And some of the self-same could be true if we move from weather forecasting to economic.”

Haldane said there were “reasonable grounds” to support that 2017 might be a difficult year for consumers as the drop in the pound started to impact prices.

The BBC reports that when asked if there was an “economic hurricane” forecast after the Brexit vote, Haldane said: “It’s true, again, fair cop. We had foreseen a sharper slowdown in the economy than has happened, in common with almost every other mainstream macro-forecaster.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. You’re not trying to tell me that Andy Haldane doesn’t know what he is talking about are you?
    Andy, if you keep talking you may be right one day! Can’t wait!

  2. Andy Haldane is (one of the) best and brightest – and unlike most prepared to tell it like it is.

    Well said Andy!

    PS
    The BBC had better/fuller coverage of this http://www.bbc.co.uk/news/uk-politics-38525924

  3. Predicting the future is fraught with danger BUT with debt levels rising again, the cost of debt likely to rise (large numbers wont have experienced ‘proper’ mortgage interest rates), living costs likewise likely to rise (due to cost push inflation and sterling) and large swells of consumers already having sought out discount retailers (Aldi, Primark et all) there feels like there’s not much room to manoeuvre.

    Add in house price inflation, high price to income multiples and government intervention in the housing sector there must surely be serious concerns that something has got to give as some point.

  4. Economics is more art than science. Granted there are sophisticated measurements, calculations and statistics that that tell economists the price of everything and they can compare these with what has gone before.
    We require economists to predict how the economy will react to the data they produce.
    The more data produced the more interpretations available so four economists debating together will probably come up with more than four points of view.
    It is not an exact science because it is trying to predict how people will react.
    Humane nature being constantly variable means that economists getting it right do so more by luck than judgement.

  5. Isn’t he the genius who said he didn’t understand pensions? IT ain’t over till the fat lady sings. They may have got the timing wrong, but there is still plenty of burgeoning conditions to add considerable veracity to the forecasts in the months and years ahead. Even today we can see financial firms negotiating with the French to move to Paris. This could be the start of a flood.

  6. And when the next recession arrives (which it probably would have done anyway) they can put their smiles on their faces and say “Told you Brexit would do this to the economy”. As Ted Shaw says above if you keep saying the same thing often enough, it will eventually be true one day

  7. Economic forecasting may well not be a science. Mathematical modelling is about probability and it is clear the immediate impact has been less than many expected. Politicians over egged their case. Sterling fell dramatically following the vote and the UK’s credit rating was cut to negative.These ‘judgements’ are still overhanging the market with little upside viewed in the longterm. The outcome of the Supreme court case is looking as it may be another blow to May’s judgement and any light cast in the wake of the judgement when she finally begins to outline, or more likely not, any real substance of her government’s negotiating position is unlikely to improve matters. Come the end of March and the start of negotiations is when reality hits.
    Unlike weather forecasting economic performance is rather more affected by human judgement. Weather forecasters have learned to err on the side of caution. Market operators, as opposed to economists, are moved by human intuitive opportunity and the absence of safety in traditional bond markets due to QE

  8. Well this Economist is quite happy…. http://www.express.co.uk/news/uk/663365/Question-Time-audience-proves-Britain-UK-leave-Brexit-European-Union-back-envelope And we did very well fro clients being prudent in our expectations either way too.

  9. I remember numerous occasions on which the forecasts for UK equities from Anthony Bolton and Neil Woodford were quite different so, if the assessments from two of the brightest minds in fund management were at odds with each other, what hope can there be of economists getting it right on an issue as big as the effects of Brexit on the UK economy? Economic winds change all the time, so any opinion formulated this week is likely to be subject to a quite different set of factors next week. So I don’t take much notice of what any economist says.

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