Bank of England Policymakers Voice Concerns Over Shift to Scenario-Based Forecasting
Concerns and Implications of Scenario-Based Forecasting at the Bank of England
By David Milliken
Background: Changes in Bank of England Forecasting Approach
LONDON, June 25 (Reuters) - The Bank of England's shift in communications to focus on multiple scenarios and individual Monetary Policy Committee members' opinions risks discouraging them from trying to reach a collective viewpoint, MPC member Megan Greene said.
In April, the BoE suspended publishing a single central forecast for the economy in favour of three separate scenarios and last year began including individual MPC members' own explanation of their votes in policy minutes.
The changes were partly in response to recommendations from former Federal Reserve Chair Ben Bernanke.
Megan Greene's Perspective
Greene said including individual policymakers' views in the minutes of each rate decision was good overall but did create new problems.
"There is a risk in our shift away from our central forecast and the introduction of individual paragraphs," she said in a written statement to parliament's Treasury Committee to mark the renewal of her position on the MPC, published on Wednesday.
"This may reduce the inclination for MPC members to discuss things with one another and try to convince one another," she added.
Alan Taylor's Viewpoint
Alan Taylor, another external member of the MPC, expressed similar concerns on Tuesday.
"The shift towards scenario-heavy communication increases rather than decreases the importance of improving and getting right the central forecast, even if on occasion it is not much talked about, or even taken out," he said at a conference hosted by Barclays and the CEPR think tank.
Contrasting Policy Positions
Greene and Taylor are at opposite ends of the MPC policy spectrum. Greene was part of the minority who voted to raise rates to 4% at this month's interest rate decision, while Taylor voted to keep rates on hold and said rates might need to be cut if inflation pressures ease.
Both Greene and Taylor have set out different scenarios to the three given by the BoE in April which they view as better capturing some of the risks facing the economy.
Conclusion
(Reporting by David Milliken, editing by Andy Bruce)