Home > Bank of England, History, Monetary Policy > Recurring Failure

Recurring Failure

Here is the graph of the headline UK CPI rate, and the Bank of England’s median forecast for the CPI rate looking 3 years out.  The latter is a roughly what the MPC aim to adjust when setting the monetary policy stance, as per Lars Svensson’s “target the forecast” methodology.  If the forecast is nailed to 2%, go and watch the tennis.  Otherwise, adjust the monetary policy stance until the forecast is at 2%.

The last recession, and the ongoing double-dip are shaded.

UK CPI Rate, Current and Forecast

UK CPI Rate, Current and Forecast

Is it chance that the failure to hold the forecast at 2% was preceded both times by a spike up to 5% on the current CPI rate?

And then.. is it chance that both episodes of failure are associated with a recession? Correlation, but no causation?  Admittedly it would better to look at some measure of nominal demand growth here, not just falling real GDP.

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