The failure to predict the financial crisis was a “Michael Fish” moment for economists, the Bank of England’s chief economist has said.
Andy Haldane compared financial forecasts to the famously inaccurate forecast by the BBC weatherman, ahead of the UK’s great storm of 1987.
He said it was fair to say the profession was “in crisis”.
But he said weather forecasting had vastly improved since then – and the same could be true for economists.
Mr Haldane was speaking to an audience at the Institute for Government in London on Thursday, when he made the comparison.
‘Tipped upside down’
He said economic models had been “rather narrow and rather fragile” which were “fine as long as the going was good” but when the world was “tipped upside down” by the 2008/2009 crisis, they had failed to cope.
“Turns out, that was a massive oversight,” he said.
“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.
“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.”
“Look at how weather forecasting has changed itself in the period since. Actually there has been a dramatic improvement in our capacity to forecast the weather… a revolution in weather forecasting.
“Much more data is being thrown at the problem and that has brought about a transformation. And some of the self same could be true if we move from weather forecasting to economic.”
On being asked whether there had been the economic “hurricane” forecast after the Brexit vote, he quipped: “It’s been very windy in Spain.”
But he told the audience at the Institute for Government: “It’s true, again, fair cop. We had foreseen a sharper slowdown in the economy than has happened, in common with almost every other mainstream macro-forecaster.”
He said that had been a “thoroughly good thing” and was largely down to the British consumer and British housing market – saying it was “almost as though the referendum had not taken place” and people’s spending power had not been “materially dented” in 2016.
But he added there were “reasonable grounds” for thinking 2017 might be a “somewhat more difficult year” for the consumer as the fall in the exchange rate began to affect prices. But he said there was “nothing inevitable” about that – it was just a “best guess”.
In 2012, on the 25th anniversary of his infamous broadcast, Mr Fish recalled: “The computer is the thing that did the forecast but … it was unfortunate that the computer lacked a huge amount of data from the area the storm was developing – but of course we didn’t have the mega-computers that we have now.”