We find ourselves in a phase which is proving very difficult for the members of the Bank of England Monetary Policy Committee as well as the Governor Mark Carney. This is on two main fronts. The first is that they eased monetary policy into a sustained fall in the UK Pound £ on the foreign exchanges and the other is the related issue of yet another forecasting failure. Associated with this is the promise to ease policy even further in the future in the face of an expected rise in inflation. From the August meeting minutes.
If the incoming data prove broadly consistent with the August Inflation Report forecast, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year.
The rhetoric back then was of “further action” which seems to have disappeared.
The issue of central banker pay has also been raised by Bloomberg who told us this.
When It Comes to Central-Banker Salaries, It Pays to Be Belgian
It goes on to tell us this.
The central bank governors of Belgium, Italy and Germany make more than the ECB president’s annual 386,000 euros ($409,400), data compiled by Bloomberg show. Belgium’s Jan Smets took the crown with about 480,000 euros, almost six times as much as bottom-of-the-list Vitas Vasiliauskas of Lithuania.
Later on it seemed to occur to them that some earned more than this and this was added.
Bank of England Governor Mark Carney earns 480,000 pounds ($599,000) plus housing benefits
Housing benefits is an interesting euphemism if you look at the accounts of the Bank of England.
Mr Carney receives, as was announced on his appointment, an annual accommodation allowance of £250,000p.a., to reflect the additional cost of living in London rather than in Ottawa.
As that on its own is more than US Federal Reserve Chair Janet Yellen receives in total you think it might have been noted in more detail. Also a report that points out that the also well paid Thomas Jordan of the Swiss National Bank “gets an annual train pass” might note this for Governor Carney.
with membership of the Career Average section of the Bank Pension Fund or 30% of salary in lieu.
As of February he has accrued already a pension of £20,000 per annum indexed to the Retail Price Index at age 65. Not bad as we wonder why the “not a national statistic” RPI as opposed to the officially targeted CPI is used? As it is the only area where I can think of where Forward Guidance has worked perhaps lessons can be learnt here, or perhaps not.
This has been a big issue this week as we see forecasts from the OBR ( remember the first rule of OBR Club) and the Institute for Fiscal Studies or IFS. The IFS does much good work but please also recall its head Paul Johnson was responsible for the botched UK Inflation Review and I still remember him leaving his own public meeting early claiming a diary mix-up. How is the Bank of England Crystal Ball doing? From Kristin Forbes on Wednesday.
In fact, average GDP growth over the quarters of heightened uncertainty directly before and after the UK referendum on EU membership has been stronger than for all of 2015. It has even been above what is generally believed to be the UK’s potential growth rate.
Hang on so it cut interest-rates and introduced more QE because we were doing better? Let us look in more detail and the emphasis is mine.
UK economic performance has been solid. Quarterly economic growth has picked up from 0.4% in Q1, to an average of 0.6% for Q2 and Q3. This is well above the consensus expectation by economic forecasters, as well as the MPC forecast…………. In both Q2 and Q3, actual GDP growth was substantially higher than forecast (by 0.4pp).
Do you like the way that being wrong is apparently okay as long as others were? No mention of places like here which were more sanguine or indeed those of you in the comments section who were also more sanguine. If so many economic forecasters get it wrong are we seeing a tyranny of the majority to coin a phrase?
I have praised Kristin as being the brightest member of the Bank of England but this stating of the obvious falls below such standards.
What have we learned? Measuring uncertainty is hard.
Really? But at least she musters a sense of humour.
There is much uncertainty about uncertainty.
However there is one more tale of woe for Bank of England forecasting.
Most business surveys suggest that some companies are already delaying investment, or expect to do so over the next year.
Let us skip to today’s update ( 2nd estimate) on UK GDP.
Gross fixed capital formation (GFCF), in volume terms, was estimated to have increased by 1.1% to £79.0 billion between Quarter 2 (Apr to June) 2016 and Quarter 3 (July to Sept) 2016.
So far up is the new down again.
Earlier this week the Daily Telegraph reported this.
Economists are too detached from the real world and have failed to learn from the financial crisis, insisting on using mathematical models which do not reflect reality, according to the Bank of England’s chief economist Andy Haldane.
So a man who has only ever had one employer which is the Bank of England and accordingly exists in its Threadneedle Street bubble is telling others about the “real world”? Also as he is in effect as Chief Economist responsible for the (failed) mathematical models of the Bank of England and has unleashed a “sledgehammer” of monetary easing in response to what they have told him how does this work exactly? Even worse his models have so far been wrong (again).
Corporate Bond QE
This was always going to be problematic as the UK £ Corporate Bond market is not well-developed. Still Apple may need the money or perhaps not if we look at its cash pile. Still supporting the German car industry via buying the bonds of BMW and Daimler…..
There is a simple issue here which is that the Bank of England made forecasts and acted on them. But where is the accountability if they go wrong? Of course things might deteriorate in 2017 and one clear area is the rise in inflation I expect. The problem here is that the Bank of England is supposed to be targeting inflation rather than looking through another “temporary” rise that it so disastrously did – think real wages – in 2010 and 2011.
This is an area I am looking into and have received some fascinating replies about on the Royal Statistics Society website. Why? Well they have no lining this year I am told ( sometimes with emphasis and detail) and this made me wonder how statisticians apply the quality mechanisms we are told about. If I can summarise in one sentence it is this from Jill Leyland.
We urgently need ONS to pick up and extend the research done in 2011/2012.
Yet we quote and analyse inflation and GDP to 0.1%.