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March 23, 2010 2:00 am
Mervyn King, governor of the Bank of England, is proposing to change the way the organisation presents economic forecasts, accepting there is a need to improve communication.
The Bank has faced a torrent of criticism over the forecasts because the monetary policy committee's big picture of the economy has too often been obscured by its attachment to complicated charts.
The criticism has been particularly intense since February because everyone outside the Bank interpreted its most recent forecasts to imply the Bank would keep interest rates at near zero for a very long time, even though Charlie Bean, the deputy governor, insisted little in the forecast had changed.
The confusion arose because the Bank published "fan charts" in February showing the MPC thought the most likely path for inflation and growth would be lower than it had thought in November.
What the charts were not able to show was that the MPC simultaneously believed there was an increased chance that the economy would grow faster than this "most likely" path, so the forecast in its entirety was little different from that in November.
Mr King told a Royal Society conference yesterday that the Bank was looking for other ways to display its charts, both to reflect the underlying message in its forecasts better and to maintain the sense that forecasting should reflect the fact that the Bank, just like weather forecasters, could not know what the future held and should not give the impression of "spurious accuracy".
"One idea that we are investigating is to show charts of the MPC's view of the probability that inflation will be above the 2 per cent target at a particular point in time," he said. Such a forecasting method would show what the Bank thought the chances were of inflation being above its 2 per cent target at different points in the future.
The governor made it clear the bank had not settled on a new way of presenting forecasts. However, his lecture represents a departure from the past.
Mr King has previously indicated that he does not trust the media or observers with more detail on the Bank's forecasts on the day of publication.
Mr King still insisted yesterday that he did not entirely trust the audience for the forecasts to view them properly if he released them in full.
"We fear that if we make such statistics available, all of our hard efforts to communicate the outlook as a whole get washed away in an extreme focus on point estimates," he said.
Mr King did not give a timetable for when he intended to improve the presentation of the forecasts. However, Bank insiders have long said that he was the sticking point within the organisation on the issue, so his recognition that "there is always room for improvement" makes it likely the Bank will make a change for its next inflation report in May.
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