Assessing the forecasters: An analysis of the forecasting records of the Treasury, the London Business School and the National Institute

This paper analyses the historical inflation and output growth forecasting records of the Treasury, the London Business School and the National Institute. An analytical framework is adopted that is based on a recent assessment by Granger of the reliability and quality of economic forecasts. It is found that forecasts are not of much use at horizons greater than 18 months (that is, 6 months before the year being forecast). Forecasters have a tendency to be incorrect in the same direction and to underestimate actual changes. Major economic events, in particular, tend to be poorly forecast, with both serious bouts of inflation and deep recessions being underpredicted. However, short-horizon forecasts tend to be both unbiased and efficient and usually get the change correctly signed.