Bank of England evaluates macroeconomic forecasts after Bernanke review

The Forecast Evaluation Report is a direct response to former Federal Reserve Chair Ben Bernanke's recommendation for the Bank of England to highlight significant forecast errors and their sources.

BoE staff have incorporated three key elements into their analysis: a 'real-time' approach using data available at the time of the forecast, recognition of the Monetary Policy Committee's (MPC) conditioning assumptions (such as market-implied Bank Rate paths), and accounting for new shocks that inevitably affect the economy.

This methodology allows for a focused evaluation of errors stemming from potential shortcomings in the Bank's models and analysis, rather than unavoidable unanticipated shocks.

The report finds that the Bank's forecasts have been at least as accurate as the average of external forecasters or alternative model-based approaches over the past decade.

While forecast accuracy has reduced since 2020, this mirrors a broader trend across benchmarks, suggesting heightened economic volatility since Covid-19 rather than specific BoE deficiencies.

However, the statistical analysis identifies areas for potential improvement, particularly for labor market variables.

Forecasts for wage growth have shown signs of bias, and the unemployment rate has been consistently overpredicted since 2015, pointing to inefficiencies in these specific forecasts.