UK economy weekly blog

Not before time:  for the first time the MPC has published the details of its forecast along with the Inflation Report. As I trailed last week, and for the first time since before the financial crisis, the MPC has lowered its inflation forecast and raised its GDP forecast (the latter stems directly from the former in my book). Inflation is forecast to peak at just over 3% in the coming months and to be back at the 2% target by the start of 2015, a year earlier than the ‘protracted’ overshoot that the MPC was forecasting in February (which is more, I would argue, in line with its remit). GDP growth is forecast to pick up to 0.5% in the second quarter (that could still be an underestimate) and to average 1.2% for 2013 as a whole, before rising to an average of just over 2% over the next two years. The MPC’s backcast has removed the second dip (GDP is estimated to have been flat in 12q1) which, with the improved outlook, gets GDP back to its pre-recession peak in 14q2, six months earlier than in the February forecast.

Chartpack: who needs it? The Stockton review of the Bank’s forecasting process calls for more transparency. The MPC’s response is to provide even more detail on the probability distributions that underpin the fancharts and more information on its key forecasting judgements. We have a chartpack which contains fancharts with both 30% and 10% bands (wow). We also have a table which sets out four key areas of judgement (the global economy, domestic demand, the supply response and inflation) that inform the forecast and the critical factors within each. I know it always sounds curmudgeonly when the reaction to greater detail on the forecast and more transparency is ‘please sir, I want some more’. But who on earth would rather have even more cuts on the fancharts than, say, a forecast of the components of demand or the output gap or a quarterly GDP table that saves us the bother of having to work it out for ourselves? If the OBR can do it from day 1, why can’t the Bank after twenty years?

Geoffrey Dicks
Chief Economist
Novus Capital Markets