Economics

The Harvey files 3: bad forecasts

January 14, 2008
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How good are the forecasters? 45 leading banks and other financial institutions ended 2007 having all failed to make an accurate guess at the 3.1 per cent by which GDP rose during the year. (The nearest was the treasury—thanks to its bracket figure of 2.75 to 3 per cent). All the others were too low. Similarly, not a single one forecast that the bank rate would end the year at 5.5 per cent. Although in mid-year many were predicting 5.75 or even 6 per cent, only one pencilled in a rate of more than 5.25 per cent back in January.

Only two got within 10 per cent of the current account deficit of £60bn—the great majority guessing more than 30 per cent too low, while every single forecaster overestimated the level of unemployment. The only relative success was on inflation: three quarters guessed to within a tenth of the actual 2.1 per cent.

Does it matter? Maybe not. But it may be a good idea to ask your experts what unforeseen events they have taken into account when examining the entrails.