From Breakingviews - Credibility crisis requires BoE to write new plot
The Governor of the Bank of England, Andrew Bailey, attends a press conference in London, Britain, May 11, 2023. REUTERS/Henry Nicholls/Pool
“I never predict anything, and I never will”. This unwittingly funny quote, attributed to 1990s football star Paul Gascoigne, could equally apply to the BoE’s approach to forecasting. Unlike many other central banks, the BoE doesn’t provide its own forecasts of how consumer prices will evolve in coming years.
The upshot of this relative information vacuum is that traders tend to overreact to economic surprises. The latest mortgage bloodbath is a case in point. On May 24, Britain’s statistics agencythat consumer prices in April had risen at an annualised 8.7% – well ahead of the market’s expectations of 8.2%. Before those numbers, traders were expecting one more hike to bring the benchmark Bank Rate from 4.5% to 4.75%. Some were even forecasting cuts later this year.
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