Bank: Our forecasts are so bad we may not see a future crash

THE Bank of England is unlikely to predict a future financial crisis because its forecasts are so poor, a senior official admitted yesterday.

Gertjan Vlieghe, a member of the Bank’s monetary policy committee (MPC), said the public have ‘unrealistic expectations’ about its economics and forecasting models.

It comes after Bank Governor Mark Carney faced accusations of joining George Osborne’s Project Fear during the referendum campaign with a series of bleak economic predictions.

Giving evidence to the Treasury select committee yesterday, Mr Vlieghe said: ‘It is always going to be the case... that there are going to be large forecast errors. We are probably not going to forecast the next financial crisis nor the next recession. Models are just not that good.’

A second official risked a backlash when he likened the result of the Brexit referendum in June to the 9/11 terror attacks.

Explaining why some firms suggested a lack of confidence in the economy immediately after the vote, Ian McCafferty, who also sits on the MPC, claimed it was a ‘once in a lifetime event... such as 9/11’.

He told MPs he would ‘class the referen- dum result as an unusual if not almost unique shock to the economy in the sense that it only happens once in a lifetime or once in a generation’.

Mr Carney also appeared to change his tune on the prospects for the economy yesterday, saying the UK’s divorce from the EU could be ‘smooth’ – and interest rates might even rise.

This was likely if the Government achieves its objective of an ambitious trade deal, he told the committee. ‘There are scenarios where this process proceeds relatively smoothly to an increasingly clear end point, and that will be consistent with a higher path for interest rates,’ he said.

However he added that there are ‘other scenarios which would be less optimistic or less positive, which could mean that policy is on a lower path than that.’

Mr Carney also acknowledged that fac- tors such as consumer behaviour could still confound the Bank’s projections. ‘Do we have a perfect model of the British household? No,’ he told MPs.

‘We might understand that no forecast as a prediction is perfect, that there are probabilities around that, but that’s not what people hear, and we need to do a better job of explaining.’

Mr Carney said he expected inflation to hit 2 per cent this month, triggered by the fall in the pound. The Bank says it will rise to 2.8 per cent in the first half of next year before falling to 2.4 per cent in three years’ time.

Last month the Bank’s chief economist Andy Haldane made headlines after admitting economic forecasting was in crisis after the 2008 market crash. He dubbed it the profession’s ‘Michael Fish’ moment – referring to a 1987 weather forecast in which Mr Fish denied claims a hurricane was going to hit Britain.

Mr Haldane told MPs: ‘The reason I mentioned that Michael Fish moment was because that story had a happy ending. After the 1987 hurricane, meteorologists put huge effort into their models, into their data, and that has now borne fruit.’

‘Models are just not that good’