Working back from the quarterly inflation report, I’ve estimated the Bank’s latest quarterly forecast. The central forecast, the mode of the distribution (on the assumption of market rates of interest), is for a contraction of 4.5 per cent in 2009, growth of 2.1 per cent in 2010 and growth of 4 per cent in 2011. Boom-time. This is a massive upward revision for 2010 and 2011 from the August forecast of 1.9 per cent and 3 per cent respectively.
More importantly, as the chart shows, the Bank is now forecasting a significant narrowing of the output gap, and it is much more confident on this than before. This is a very strong central forecast – a real V-shaped recovery.
But the main risk, the Bank believes, is that growth will be slower than the central forecast. I estimate the risk-adjusted forecast, the mean of the distribution, to show a contraction of 4.5 per cent in 2009, growth of 1.5 per cent in 2010 and growth of 3 per cent in 2011.
The Bank has been nothing if not inconsistent, of late. Gloomy in February and May, optimistic in August and now it must be one of the most optimistic forecasters in Britain. It is far more bullish than the Treasury, which expects growth to rise to 1 – 1.5 per cent in 2010 and 3.25 – 3.75 per cent in 2011. Good news for the pre-Budget report on 9 December, since the Treasury will simply upgrade its forecasts in line with the Bank. The consensus of private forecasters is for 1.2 per cent growth.
I should point out that these forecasts have been worked out using a ruler. The Bank of England pig-headedly insists on publishing its forecasts only in graphical form, releasing the underlying data a week later. So those who want to know the underlying risk valuations must work backwards from the graph.
At the FT, we have to do this to write up the news from the quarterly inflation report, and I have become quite adept at getting the numbers right. It is, of course counter-productive for the Bank, because everyone has less time to read its report while they waste their time working out how the Bank’s forecast has changed. One day, I am sure, the Bank will see sense.