Today gives us an opportunity to take a look at the data for the UK money supply and look at the trends. Before we do so the subject of economic forecasting has come up and according to the BBC economics editor Kamal Ahmed a person fairly regularly featured on here has given a “withering response” to a suggestion that “economics is in crisis”. Of course the economics in crisis theme was even expressed by the Queen on a visit to the LSE in November 2008. From the Daily Telegraph.
Prof Garicano said: “She was asking me if these things were so large how come everyone missed it.” He told the Queen: “At every stage, someone was relying on somebody else and everyone thought they were doing the right thing.”
Well that’s all right then apparently. Actually the economics profession did act true to form when 4 years later on a visit to the Bank of England one of its economists offered an answer. However let us return to our individual.
One of Britain’s most highly respected economists has hit back at criticisms of economic forecasts.
When I discovered the identity and that it was Martin Weale I asked by whom he was respected? But let us continue with the piece itself.
They could not be expected to precisely predict the economic future but were based on “sensible inferences from past patterns,” he said.
Briefly I agree with him but there are two major problems here. These forecasts are made several years ahead to an accuracy of 0.1% when in fact they struggle to know whether the numbers are in fact going up or down. The quarter just past was an example of even a short-term forecast being very wrong. Also in an era of considerable change “sensible inferences from past patterns” are in fact not sensible at all. On the way even Martin Weale found himself admitting this.
“People say forecasts all turn out to be wrong,” he said.
“I regard that as a silly comment, forecasting is uncertain, that’s the nature of things, forecasts aren’t wrong or right, they are simply the best you can do.
You may note that the higher you get up the establishment food and pay chain the less responsible you are for anything “forecasts are wrong or right”, and yet those at the lower and middle ends of the scale would find themselves sacked for consistently being wrong.
Martin Weale’s Record
If we look back he was involved in the flawed monthly average earnings series and perhaps it was to him a “sensible inference” to ignore the self-employed. Also he has been an implicit supporter of rental equivalence in CPIH. That’s before we get to his U-Turns as he twice had a series of votes for Bank Rate rises from the Bank of England before changing his mind. In fact on the last occasion he appeared to do so with his tail between his legs. Even the Financial Times had to put it like this in late July.
Only a week ago, Mr Weale gave a speech urging the BoE to wait “for firmer evidence” before cutting rates or expanding its quantitative easing programme to encourage spending.
So he then did what?
One of the UK’s top monetary policymakers has indicated he has changed his mind after a series of negative business surveys and now favours an immediate stimulus for the UK economy.
You may note how a man with a consistent record of failure is described by the media “top monetary policymaker” and “highly respected”. Is this what they mean by post-truth news? Oh and the basis of his change of mind must have been an unclear signal.
Although you can’t say there’s a clear signal, if you spend all the time waiting for a clear signal, it never comes.”
A concerted plan by the Bank of England
This has happened too often now in a short space of time. The Forward Guidance of not only higher interest-rates but soon of 2013/14 was obviously completely wrong. The initial post-Brexit guidance was wrong too as Kristin Forbes admitted last week. Now things which were issued as guides and people remortgaged on the back of are retrospectively described as subject to uncertainty. I believe that is called re-writing history.
Oh and should Professor Weale have the time from his role as a fellow of the ONS – it is hard not to recall Sir Humphrey Appleby pointing out that people got such roles to help cover up past mistakes- perhaps he is thinking of a way of filling it.
Mr Weale, who sat on the MPC between 2010 and 2016, said the OBR was “rightly” set up to take the politics out of Treasury forecasting and that it had done so successfully.
So in my financial lexicon for these times both “uncertain” and “successfully” are sub-sections of the word wrong.
Broad Money Surges
This is a real problem for Martin Weale and his media spinners. You see whilst Martin was spinning like a top with every business survey that came out the UK Pound had fallen and UK Broad Money growth was pushing higher. We now know that this has continued.
M4ex increased by £11.7 billion in October, compared to the average monthly increase of £14.5 billion over the previous six months. The three-month annualised and twelve-month growth rates were 6.9% and 7.8% respectively.
So we see that the taps are fully open although perhaps not everyone as bank lending dipped which means that the precious banking sector which the Bank of England has supposedly reformed is a barrier again. But as we look through the numbers there are other signs of easy credit.
Consumer credit increased by £1.6 billion in October, broadly in line with the average over the previous six months. The three month annualised and twelve-month growth rates were 10.6% and 10.5% respectively.
Okay but we have been told that Martin ( until July) and his colleagues have been prioritising lending to smaller businesses since the summer of 2013 with the Funding for Lending Scheme. So that must be really through the roof?!
Within this, loans to small and medium-sized enterprises (SMEs) decreased by £0.2 billion, compared to an average monthly increase of £0.3 billion over the previous six months. The twelve-month growth rate was 1.7%.
Er well no but the mortgage lending it is no longer supposed to help still seems to be rumbling on.
Lending secured on dwellings increased by £3.3 billion in October, compared to an average monthly increase of £2.6 billion over the previous six months. The three-month annualised and twelve-month growth rates were 3.0% and 3.1% respectively.
As you can see the “withering” response is from a man who looks set to be wrong yet again. If we step aside from the politics which are around here we see a Bank of England which has eased policy into a currency decline and now sees Broad Money growing quickly. In fact if we only grow by say 1.5% next year as many forecasters have recently upgraded us to then there is quite a road to 7.8% isn’t there? A rule of thumb would be that we might expect inflationary pressure of 6%. A lot of care is needed here because the leads and lags in such calculations can be unpredictable and if the money supply remains firm then growth will likely be higher. This is an area where in the 1980s a lot of mathematical models or what Dr.Weale would call “sensible inferences” blew up and had a HAL-9000 style moment. But there is a link and a causal relationship at play here which will mean that the Bank of England will have plenty of opportunity to mull the word “successfully” as defined above.
There was another sense of establishment entitlement at play when Dr.Weale left the Bank of England as it payed for his leaving do. From the Evening Standard.
The Old Lady of Threadneedle Street spent £3,324 on a retirement reception for the ex-monetary policy committee (MPC) member, who stepped down on August 8.
Dr Weale was also presented with a bound set of speeches covering his tenure, costing the Bank a further £416.
I do not know about you but I have had to pay for mine. Mind you was the bound set of speeches considered a punishment?