Forecasting changes in UK interest rates

Making accurate forecasts of the future direction of interest rates is a vital element when making economic decisions. The focus on central banks as they make decisions about the future direction of interest rates requires the forecaster to assess the likely outcome of committee decisions based on new information since the previous meeting. We characterize this process as a dynamic ordered probit process that uses information to decide between three possible outcomes for interest rates: an increase, decrease or no change.