Sir Mervyn can't be pleased. The MPC is in a hole.

As in the US, growth forecasts were wrong all along.

There were a lot of very embarrassed members of the economics staff at the Bank of England, this morning. They messed up and it is certain that Sir Mervyn was not pleased, as now the MPC is in a hole. More of that in a minute. First, we need some background.

The Bank of England has put a good deal of resources into trying to understand the patterns of revisions to data in general and to GDP quarterly growth data in particular. Growth numbers are published by the ONS and then are revised over time as more data becomes available. So, not only is there uncertainty about where the economy is going, but also about where it is currently and where it was before. Over the past year or so, the MPC has based its forecast to growth and output not so much on the official ONS data but on what it thought it would end up being once it had gone through a revision cycle.

So, here is the latest forecast of the MPC taken from its August inflation report (2011). Everything to the right of the dashed vertical line is the forecast and the green lines are the 90 per cent confidence interval, which widens as the forecast moves further into the future. To the left of the line is the backcast, which also has error bands on it showing that it is measured with error. The black line shows the official data from the ONS. The fact that the green lines are mostly above the black line means that the MPC was expecting the data to be revised up. It didn't turn out that way.

 

 

[MPC's GDP projection based on constant nominal interest rates at 0.5 per cent and £200bn asset purchases, August 2011]

 

The table below shows the old data and the new data. A few facts stand out. First, the extent of the decline in output in 2008 and 2009 was greater than was previously thought: that output fell by 7.3 per cent between 2008 Q2 and 2009 Q2, compared with 6.6 per cent, as previously estimated. Second, the fall in output now appears to have stopped in 2009 Q2, rather than in 2009 Q3. Third data for 2008 Q3 has been revised down substantially -- recall that the first release was + 0.2 per cent. Finally, output over the last three quarters did not grow at all compared with the 0.2 per cent previously estimated.

Hence the staff and the MPC got it wrong and have collective egg on their faces. So did a number of others including Gavyn Davies, who in his blog article "Anglo Saxon GDP not as weak as it appears" argued on 1 May 2011: "It is quite likely that UK real GDP growth in the past two quarters will be revised up markedly from the zero rate which is currently estimated." Andrew Sentance has continued to argue that one of the major problems the UK faces is inflation, because the recession was much weaker than previously thought and the recovery much stronger. As ever, his analysis is negatively correlated with the actual outcomes. Kevin Daly from Goldman Sachs also claimed on 24 April: "Despite the uncertainty about the future, the UK's growth performance in the recent past has been better than is commonly portrayed." Wrong, chaps, sorry.

This is almost exactly what happened in August 2008, when the MPC failed to see the recession, because it assumed the back data would be revised up but, in the end, they were revised down. The MPC's forecast is now going to have to be lowered even further, bringing it closer to that of NIESR, which has been very bearish -- and on the basis of these numbers, they are likely to lower their forecast even further, according to Simon Kirby.

This means that the MPC has no alternative but to do more QE at its meeting tomorrow, proving Adam Posen has been right all along. The MPC can't afford to wait until November. I suspect also that some heads will roll at the Old Lady of Threadneedle Street -- and so they should. Embarrassing.

  OLD NEW
2007 Q1 1.0 1.1
2007 Q2 0.6 1.2
2007 Q3 0.5 1.2
2007 Q4 0.3 0.6
2008 Q1 0.5 0.0
2008 Q2 -0.3 -1.3
2008 Q3 -0.9 -2.0
2008 Q4 -2.1 -2.3
2009 Q1 -2.2 -1.6
2009 Q2 -0.8 -0.2
2009 Q3 -0.3 0.2
2009 Q4 0.5 0.7
2010 Q1 0.4 0.2
2010 Q2 1.1 1.1
2010 Q3 0.6 0.6
2010 Q4 -0.5 -0.5
2011 Q1 0.5 0.4
2011 Q2 0.2 0.1

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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The dog at the end of the lead may be small, but in fact what I’m walking is a hound of love

There is a new, hairy face in the Hovel.

There is a new, hairy face in the Hovel. I seem to have become a temporary co-owner of an enthusiastic Chorkie. A Chorkie, in case you’re not quite up to speed with your canine crossbreeds, is a mixture of a chihuahua and a Yorkshire Terrier, and while my friend K— busies herself elsewhere I am looking after this hound.

This falls squarely into the category of Things I Never Thought I’d Do. I’m a cat person, taking my cue from their idleness, cruelty and beauty. Dogs, with their loyalty, their enthusiasm and their barking, are all a little too much for me, even after the first drink of the day. But the dog is here, and I am in loco parentis, and it is up to me to make sure that she is looked after and entertained, and that there is no repetition of the unfortunate accident that occurred outside my housemate’s room, and which needed several tissues and a little poo baggie to make good.

As it is, the dog thinks I am the bee’s knees. To give you an idea of how beeskneesian it finds me, it is licking my feet as I write. “All right,” I feel like saying to her, “you don’t have to go that far.”

But it’s quite nice to be worshipped like this, I have decided. She has also fallen in love with the Hovel, and literally writhes with delight at the stinky cushions on the sofa. Named after Trude Fleischmann, the lesbian erotic photographer of the Twenties, Thirties and Forties, she has decided, with admirable open-mindedness, that I am the Leader of the Pack. When I take the lead, K— gets a little vexed.

“She’s walking on a loose lead, with you,” K— says. “She never does that when I’m walking her.” I don’t even know what that means, until I have a think and work it out.

“She’s also walking to heel with you,” K— adds, and once again I have to join a couple of mental dots before the mists part. It would appear that when it comes to dogs, I have a natural competence and authority, qualities I had never, not even in my most deranged flights of self-love, considered myself to possess in any measurable quantity at all.

And golly, does having a dog change the relationship the British urban flâneur has with the rest of society. The British, especially those living south of Watford, and above all those in London, do not recognise other people’s existence unless they want to buy something off them or stop them standing on the left of the sodding escalator, you idiot. This all changes when you have a dog with you. You are now fair game for any dog-fancier to come up to you and ask the most personal questions about the dog’s history and genealogy. They don’t even have to have a dog of their own; but if you do, you are obliged by law to stop and exchange dog facts.

My knowledge of dog facts is scant, extending not much further beyond them having a leg at each corner and chasing squirrels, so I leave the talking to K—, who, being a friendly sort who could probably talk dog all day long if pressed, is quite happy to do that. I look meanwhile in a kind of blank wonder at whichever brand of dog we’ve just encountered, and marvel not only at the incredible diversity of dog that abounds in the world, but at a realisation that had hitherto escaped me: almost half of London seems to have one.

And here’s the really interesting thing. When I have the leash, the city looks at me another way. And, specifically, the young women of the city. Having reached the age when one ceases to be visible to any member of the opposite sex under 30, I find, all of a sudden, that I exist again. Women of improbable beauty look at Trude, who looks far more Yorkie than chihuahua, apart from when she does that thing with the ears, and then look at me, and smile unguardedly and unironically, signalling to me that they have decided I am a Good Thing and would, were their schedules not preventing them, like to chat and get to know me and the dog a bit better.

I wonder at first if I am imagining this. I mention it to K—.

“Oh yes,” she says, “it’s a thing. My friend P-J regularly borrows her when he wants to get laid. He reckons he’s had about 12 shags thanks to her in the last six months. The problems only arise when they come back again and notice the dog isn’t there.”

I do the maths. Twelve in six months! That’s one a fortnight. An idea begins to form in my mind. I suppose you don’t have to be a rocket scientist to work out what it is. But no. I couldn’t. Could I?

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 28 April 2016 issue of the New Statesman, The new fascism