David Prosser: The danger of forecasters losing their credibility
Outlook As Robert Chote copped it from MPs on the quality of his economic forecasting, the head of the Office of Budget Responsibility could have been forgiven for pointing out that he's not the only one to get it wrong. The Bank of England's recent record on the inflation forecast has been hopeless, but no-one is publicly chastising Sir Mervyn King for laughing at the wrong moment, as one especially pompous MP chose to with Mr Chote yesterday.
The good news for the Monetary Policy Committee as it meets today for its final deliberations of the year is there are at long last some signs the Bank's insistence that inflation will start coming down towards the 2 per cent target is realistic. Last month's official inflation measure suggested we had reached a peak and there has since been more encouraging news – like the lower shop price inflation recorded by the British Retail Consortium, for example.
That may explain why some members of the MPC appear gung-ho just now. In recent days, both Martin Weale and Paul Fisher have, for example, given the distinct impression they are already expecting the £75bn return to quantitative easing announced in October to be followed by a second round of stimulus. That won't come at the culmination of the MPC meeting tomorrow lunch time, but more QE looks likely for the new year.
That will test the Bank's credibility further: and QE is a policy that could become dangerous in the event that people believe the MPC no longer knows what it is doing with inflation. Cross your fingers that the early hopes we have finally turned the corner on inflation are not dashed.
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