I Doubt We’ll Predict Next Financial Crisis, Says Carney

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What chance do DIY investors have in predicting how the markets will perform when even the experts say they are unlikely to make accurate forecasts?

Bank of England governor Mark Carney has poured scorn on the idea that the central bank could anticipate another global financial crisis and agreed that they certainly did not see the last one coming.

Since 2007, the Bank has sunk money and resources into providing better economic forecasts, only to continue getting the numbers wrong.

Take Brexit, he explained, the Bank was bracing for an economic downturn.

Instead, the British economy has powered on at the same rate of growth as before the referendum with no sign of dropping off.

No economic forecast is perfect

The gloom over accurate economic forecasts was discussed by Bank officials, including Carney, who were questioned by MPs sitting on the Treasury Select Committee.

Carney told the committee that he expected surveys after the Brexit referendum to show a dip in a gloomier performance than expected and that the Bank should have factored this into their own assessments.

“We didn’t think the economy would go into recession,” he told the MPS.

“We were towards the top end of forecasters at the time. We should have been higher, in retrospect,” said the Governor.

“We might understand that no forecast is perfect, but that is not what the public hears. We need to do a better job of explaining what a forecast is and what the different scenarios are for the economy.”

No confidence in predicting economy

Gertjan Vlieghe, one of Carney’s colleagues on the rate setting Monetary Policy Committee, also rubbished economic modelling.

“I am never confident of any forecast,” he said.

“Economic models can never be perfectly accurate regardless of how much data and analysis the economists put into the prediction.

“It is still going to be the case that there are large forecast errors, we are probably not going to forecast the next financial crisis, nor are we going to forecast the next recession – models are just not that good.”

The committee is looking into the detail of the Bank’s last quarterly inflation report, published earlier this month.

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