The Bank of England’s chief economist likened economists’ failure to predict the economic carnage of the 2008 financial crisis to Michael Fish’s weather forecast on the eve of the Great Storm of 1987.
Andy Haldane said there was “a massive oversight” in economists’ models before the crisis which did not account for crises in the financial system.
“Could we find a way out of the trap? Of course we could. Let’s go back to a different crisis, which is the crisis, not in economic forecasting but in weather forecasting, that resulted from the 1987 storm,” Haldane said in comments reported by the BBC.
“Remember that? Michael Fish getting up: ‘There’s no hurricane coming but it will be very windy in Spain.’ Very similar to the sort of reports central banks – naming no names – issued pre-crisis, ‘There is no hurricane coming but it might be very windy in the sub-prime sector.'”
Haldane said that economic forecasting could be improved by using more data, just as weather forecasting has improved in the nearly-30 years since the 1987 storm.
Fish joked that a hurricane would not hit Britain in a broadcast the night before winds of 120mph caused widespread damage.
“A woman rang the BBC and said that she’d heard there was a hurricane on the way,” Fish said in his fateful broadcast. “If you’re watching, don’t worry, there isn’t.”
The October “Great Storm” of 1987 was a once in 200 years event and killed 22 people.
Here is the full video if you’re feeling nostalgic:
Economists’ predictions have been called into question once again, with the UK economy proving to be more resilient than economists expected in the wake of last June’s Brexit vote.
Despite this, the Bank of England will not change its view that the vote will be negative for the economy, Haldane said.
“There has been more resilience among consumers and in the housing market than we had expected. Has that led us to fundamentally change our view on the fortunes of the economy looking forward over the next several years? Not really,” Haldane said.
“This is more a question of timing than of a fundamental reassessment of the fortunes of the economy.”
Every single sector of the British economy is doing better than expected and has defied the forecasts of economists in December, according to the latest services PMI data from IHS Markit on Thursday.
The services sector — which includes everything from banking to waitressing — drew a reading of 56.2 in the month, that’s compared with a 55.1 reading in December, and ahead of the flash estimate of 54.7.
It can be argued that the expected Brexit economic fallout hasn’t been felt because Brexit hasn’t happened yet. Prime Minister Theresa May is yet to trigger article 50, which starts the formal procedure to leave the EU.
That has not stopped Morgan Stanley, one of the world’s biggest investment banks, “eating humble pie” about its post-Brexit economic forecasts.
The American bank forecasted a Brexit induced recession and a long-lasting slowdown in the British economy off the back of diminished investment and weakening consumer demand. Admitted on Thursday that their initial post-referendum forecasts were “too pessimistic.”
Here is the chart: