The Bank of England has admitted its dire warnings of a downturn in the wake of the Brexit vote were a “Michael Fish” moment and said that the economics profession was now in “crisis”.
Andy Haldane, the Bank of England’s chief economist, said there was a “disconnect” between political warnings about Brexit and the “remarkably placid” state of the markets, adding that the worst predictions may turn out to be “just scare stories”.
He made the concession as new figures suggested Britain was the fastest growing of all advanced economies last year after the services sector defied gloomy forecasts to hit a 17-month high.
It is very similar to the sort of reports central banks issued pre-crisis, that there is no hurricane coming but it might be very windy in sub-prime
He made the concession as new figures suggested Britain was the fastest growing of all advanced economies last year after the services sector defied gloomy forecasts to hit a 17-month high.
It is very similar to the sort of reports central banks issued pre-crisis, that there is no hurricane coming but it might be very windy in sub-prime
The FTSE 100, the index of Britain’s biggest companies, closed on a record high for the sixth time in a row on Thursday – the longest run for 20 years.
At an event at the Institute for Government in London, Mr Haldane said that criticism of economists was a “fair cop” after they failed to predict the financial crisis and were wrong about the impact of the Brexit vote.
He compared their performance to Mr Fish’s infamous weather forecast in October 1987, in which he dismissed warnings that a hurricane was “on the way” but noted there could be high winds in Spain.
At an event at the Institute for Government in London, Mr Haldane said that criticism of economists was a “fair cop” after they failed to predict the financial crisis and were wrong about the impact of the Brexit vote.
He compared their performance to Mr Fish’s infamous weather forecast in October 1987, in which he dismissed warnings that a hurricane was “on the way” but noted there could be high winds in Spain.
"It is very similar to the sort of reports central banks issued pre-crisis, that there is no hurricane coming but it might be very windy in sub-prime.”
When it was put to him that the Bank of England had forecast a “hurricane” after the Brexit vote which had not materialised, Mr Haldane replied: “It’s true, and again fair cop.”
When it was put to him that the Bank of England had forecast a “hurricane” after the Brexit vote which had not materialised, Mr Haldane replied: “It’s true, and again fair cop.”
He said: “We had foreseen a sharper slowdown in the economy than has happened, in common with almost every other mainstream macro forecaster. Why has that been the case? We need look no further than the behaviour of the British consumer, the British housing market.
“If you look at how the consumer performed during the course of the last year it’s almost as though the referendum had not taken place. In terms of the real things like pay and jobs not very much happened during the course of last year. It’s pretty much business as usual. The spending power in people’s pockets was not materially dented.”
He said that people were still likely to see “something of a squeeze” on their spending power this year because the falling value of the pound would lead to rising prices. However, he added that it was not “inevitable”.
He said: “Right now there is a very interesting disconnect between what we read in the papers about the degree of political and policy uncertainty, which by any historical metric is at high levels, and what we have seen from the economy and financial markets, which have actually been remarkably placid. That disconnect cannot last forever. There will need to be a reconciliation between the two ... Maybe some of the scarier stories politically will be seen to be just that – scare stories. ”
“If you look at how the consumer performed during the course of the last year it’s almost as though the referendum had not taken place. In terms of the real things like pay and jobs not very much happened during the course of last year. It’s pretty much business as usual. The spending power in people’s pockets was not materially dented.”
He said that people were still likely to see “something of a squeeze” on their spending power this year because the falling value of the pound would lead to rising prices. However, he added that it was not “inevitable”.
He said: “Right now there is a very interesting disconnect between what we read in the papers about the degree of political and policy uncertainty, which by any historical metric is at high levels, and what we have seen from the economy and financial markets, which have actually been remarkably placid. That disconnect cannot last forever. There will need to be a reconciliation between the two ... Maybe some of the scarier stories politically will be seen to be just that – scare stories. ”
Mark Carney, the Governor of the Bank of England, warned in the run-up to the referendum that Britain could face a “technical recession” if it voted to leave and said Brexit represented the “biggest domestic risk” to the UK’s financial stability.
His interventions were controversial and led to Eurosceptic Conservative MPs accusing him of being part of “project fear” and calling on him to quit. Since the referendum the Bank of England has raised its economic forecasts.
His interventions were controversial and led to Eurosceptic Conservative MPs accusing him of being part of “project fear” and calling on him to quit. Since the referendum the Bank of England has raised its economic forecasts.
The economy has defied forecasts in almost every area since the vote to leave the European Union. Unemployment remained at a record low of 1.62 million in the three months to October, house prices rose by 6.9 per cent in the year to October and the Bank has raised expectations for economic growth this year from 0.8 per cent to 1.4 per cent.
Figures also showed new car sales at an all-time high. The Society of Motor Manufacturers and Traders said 2.69 million cars were registered last year, 2 per cent higher than in 2015.
It came as a survey revealed that the services sector, which includes retail and banking, grew at its fastest pace for 17 months. Chris Williamson, of IHS Markit, which produces the survey, said it added “to signs that the UK economy continues to defy widely held expectations of a Brexit-driven slowdown”.
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Figures also showed new car sales at an all-time high. The Society of Motor Manufacturers and Traders said 2.69 million cars were registered last year, 2 per cent higher than in 2015.
It came as a survey revealed that the services sector, which includes retail and banking, grew at its fastest pace for 17 months. Chris Williamson, of IHS Markit, which produces the survey, said it added “to signs that the UK economy continues to defy widely held expectations of a Brexit-driven slowdown”.
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