Crunch time

For anyone considering a career in economic forecasting, the Bank of England’s inflation report for August 2007 ought to be required reading. A graph illustrating its Monetary Policy Committee’s ‘best collective judgment’ of annual economic growth two years ahead is fixed around a central prediction of 2.5 per cent, with extreme boundaries of 0.8 per cent and 4.2 per cent. But after two years, economic growth was running at –5.6 per cent, and the economy had just completed its fifth consecutive quarter of negative growth. The finest minds of Threadneedle Street could not see two years ahead.

The Bank of England’s August 2007 forecast for the economy

In this case, the Bank of England could not even see a few days ahead, because no sooner had the ink dried on their inflation report than, on 9 August 2007, the international credit markets froze, precipitating the Northern Rock crisis, followed a year later by the collapse of Lehman Brothers and what was to become the deepest recession that the developed world had seen since the 1930s.