The never-ending failures of the forecasters
The Bank of England isn’t the only ‘expert’ body that keeps getting its predictions wrong.
The Bank of England (BoE) has been under fire recently for its repeated failure to predict the rise and persistence of UK inflation. Such criticisms will sting even more today, now that the bank has hiked its base rate by more than expected to five per cent, in a desperate effort to curb prices. Last week, it announced a new review of its forecasting methods.
By common consent, the BoE has got nearly every one of its forecasts about inflation and interest rates wrong. In September 2021, Andrew Bailey, the governor of the BoE, downplayed inflation as ‘transitory’. A year later, he optimistically claimed that it would fall early in 2023. And yet, in that time, inflation has risen to heights not seen since the early 1990s.
But perhaps the problem lies less with the BoE’s forecasting specifically, than with the forecasting industry in general. Just look to Sweden, where bankers have also been struggling to predict the financial future.
Sweden’s experts – like their counterparts in the UK – have long been forecasting a significant fall in inflation. But last week it emerged that Sweden’s ‘consumer price inflation index with fixed interest rate’ had barely fallen, from an imposing 8.4 per cent in April to a still sizable 8.2 per cent in May. Attempting to explain the buoyancy of inflation, Michael Grahn, chief economist at Danske Bank, blamed, er, Beyoncé. Her decision to start a new world tour in Stockholm in May had led to a surge in local hotel prices, he said. Continuing in this vein, Andreas Wallström, head of forecasting at Swedbank, has predicted that three nights of Bruce Springsteen in Gothenburg this week will have ‘a similar effect’ on prices.
It seems that economists in Sweden are now basing their inflation forecasts on the ticket sales and hospitality services they believe will accompany a summer concert. If nothing else, this shows that Andrew Bailey and his colleagues in Britain are not alone in their inability to understand or forecast inflation.
The uselessness of the forecasters extends beyond the banking sector, too. Remember computer-modelling whiz Neil Ferguson, the Imperial College professor whose scaremongering predictions of mass Covid fatalities provided the key justification for lockdowns in the UK and beyond? In March 2020, he stated that ‘in the (unlikely) absence of any control measures… we would predict approximately 510,000 deaths in [Great Britain]’ within three months of the pandemic starting. The accuracy of that forecast is impossible to judge, given the UK did impose control measures during that period in the shape of the first lockdown. But there are still plenty of reasons to doubt it. Ferguson’s forecasting models, when applied to Sweden, predicted 96,000 deaths by summer 2020 in the absence of any control measures. Yet despite Sweden’s refusal to lock down, the actual death toll reached just 6,000 by that point.
Ferguson’s Covid-death scaremongering was not his first rodeo, either. Over nearly three decades, he has been consistently over-the-top in his predictions of the deaths caused by pandemics. In 2002, he predicted that BSE would kill between 50,000 and 150,000 people. In reality, it killed just 178.
Forecasters’ predictions continually and routinely fail to come true. But this never seems to dent their confidence. The hubris of forecasters apparently knows no bounds. For all their failures, they can still command column inches and academic funds by veering towards worst-case scenarios.
There is a lesson here. Namely, never take anything these people say seriously. In Ancient Greek mythology, the prophetess Cassandra was always right about the future, but never believed. Today’s forecasters are never right about the future, but always believed.
Time to treat them with the scepticism they deserve.
James Woudhuysen is visiting professor of forecasting and innovation at London South Bank University.
Picture by: Getty.
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