The Great Debate UK

from MacroScope:

The perils of predicting BoE policy

BRITAIN/As we’ve noted extensively, economists often get it wrong. Leaving aside their collective failure to recognise an impending global recession, you might recall a shock interest rate hike from the Bank of England in January 2007.

This was another event that almost every economist polled by Reuters failed to spot, and there are signs that four years on, economists might be setting themselves up for a similar shock.

The consensus from the last Reuters BoE poll last week showed interest rates would stay on hold into the fourth quarter, even though UK money markets have priced in a 100 percent chance of a rate hike by May. Since the January meeting, some of the bank’s Monetary Policy Committee members have publicly stated their determination to fight strong inflation.

But going back to January 2007, the only analyst out of the 50 polled by Reuters who predicted that shock rate hike was Simon Ward, chief economist at Henderson Global Investors. If the MPC does indeed flay analysts’ consensus this year by hiking rates before April, he stands to repeat his 2007 feat by being the only economist in the last poll to forecast a hike in the first quarter.

from The Great Debate:

Forecasting and its discontents

"Prediction is very difficult, especially if it's about the future," is attributed to a long list of people. Even with that in mind, however, the first eight months of 2010 have been especially unkind to professional forecasters and investors as markets have lurched between extremes of pessimism and optimism.

Normally forecasters can benefit from diversification -- publishing lots of forecasts ensures at least some prove correct. But heightened correlation between and within asset classes has denied forecasters and investors even that consolation.

A reality check from Standard & Poor’s

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REUTERS– Neil Collins is a Reuters columnist. The views expressed are his own –

Standard & Poor’s could have chosen a better day to kick the British economy, by placing the UK onto “negative outlook”, the usual precursor to a downgrade of S&P’s rating of an issuer’s debt.

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