Bank used inflation forecast ‘based on pencil drawing’
THE Bank of England relied on an inflation forecast based on a pencil drawing, a former official has said.
Andy Haldane, the Bank’s former chief economist, who worked in Threadneedle Street from 1989 to 2021, said an early forecast used by the central bank was based on a sketch done by a former governor.
Writing in the Financial Times, Mr Haldane said: “In the early years of inflation targeting in the UK, the then head of forecasting at the Bank of England entered my room clutching a piece of paper.
“On it were two lines: the inflation forecast produced painstakingly by his team over the preceding weeks, and an alternative inflation projection handdrawn in pencil by the then governor. Only the latter ‘forecast’ ever saw the light of day.”
The Bank of England began targeting a set rate of inflation in 1992, under then governor Robin Leigh-pemberton. He was succeeded by Eddie George in 1993 who ran the Bank for a decade.
Mr Haldane did not indicate which governor he was referring to. The revelation that hand-drawn projections were used in the early days comes amid scrutiny of the Bank’s forecasting abilities, following a damning report published last week by Ben Bernanke, former Federal Reserve chairman.
Mr Bernanke, a Nobel Prize-winning economist, highlighted “significant shortcomings” in the Bank’s forecasting model and capabilities.
Mr Haldane said in his column that there were broader issues with economic forecasting more generally, calling it “largely performative, typically opaque, nine parts art to one part science”.
The Bank of England declined to comment. Mr Haldane was contacted for comment.
It came as an incoming deputy governor promised to “radically reform” the Bank’s approach to forecasting in the light of the Bernanke review.
Clare Lombardelli told MPS on the Treasury select committee: “Can I assure you there’s going to be a shake-up in response to Bernanke? Absolutely.” Ms Lombardelli takes over from Ben Broadbent as a deputy governor this summer and is leading the response to Mr Bernanke’s review.