MPC member warns BoE won't be able to forecast next financial crisis

Forecasts only a probability

Laura Dew
clock • 1 min read

The Bank of England is unlikely to successfully predict the next financial crisis due to the limitations of its models, according to Monetary Policy Committee (MPC) member Gertjan Vlieghe.

According to The Guardian, Vlieghe (pictured), who joined the committee in July 2015, said the Bank's economic models were unable to prevent forecasting errors.

Speaking to the Treasury Select Committee with fellow MPC members Mark Carney and Ian McCafferty, Vlieghe said: "We are probably not going to forecast the next financial crisis or forecast the next recession. Our models are just not that good."

The trio were answering questions from the committee over the Bank's forecasting errors ahead of the EU referendum. 

Prior to the Brexit vote, the Bank had forecast a sharp economic slowdown should the UK vote 'Leave', but economic data since June suggests the economy is more resilient than expected, with GDP beating forecasts with a rise of 0.6% in Q4.

Vlieghe said the Bank is continually trying to improve its forecasting models, but that it was impossible to offer a high degree of certainty about long-term events as a forecast is only a probability.

This lack of accuracy means it is hard enough for the BoE to forecast a recession, let alone a financial crisis of 2008 proportions, he added.

This is not the first time the Bank has admitted to problems with forecasting. In January, chief economist Andrew Haldane described economic forecasting models as 'narrow and fragile'.

Referencing the post-Brexit period, Haldane said: "The problem came when the world was tipped upside down and those models were ill-equipped to making sense of behaviours that were deeply irrational."