Bank of England's chief economist admits big Brexit mistake

Andrew Haldane says his profession is "to some degree in crisis"

Bank of England's chief economist admits big Brexit mistake

Andrew Haldane, of the Bank of England. Picture by Ted S. Warren AP/Press Association Images

The Bank of England’s chief economist has admitted it was wrong to predict a dire downturn if the UK voted to leave the EU.

Andrew Haldane called it the bank's “Michael Fish moment” – comparing it to the time the TV weatherman failed to predict a hurricane in 1987.

The bank had issued dire warnings against a Brexit vote, with governor Mark Carney even saying the country could slip into recession.

Instead, the FTSE 100 closed on a record high for the sixth consecutive time on Thursday, the same day figures were released suggesting Britain was the fastest-growing of the advanced economies last year.

Haldane said criticism of economists for failing to predict the financial crisis and the impact of the Brexit vote were a "fair cop", adding that the economics profession was "to some degree in crisis".

Talking about the financial crisis at an event for the Institute for Government in London, he said:

"Let's go back to a different crisis, the crisis not in economic forecasting but weather forecasting.

"Michael Fish getting up: 'Someone's called me, there's no hurricane coming but it will be windy in Spain.'

"It is very similar to the sort of reports central banks issued pre-crisis, that there is no hurricane coming but it might be very windy in sub-prime."

Fish made the infamous weather forecast in October 1987, dismissing warnings that a hurricane was "on the way" but forecasting high winds for Spain.

Instead, the UK experienced the Great Storm of 1987, with winds of 115mph and the deaths of 18 people.

It was put to Haldane that the Bank of England had forecast a similar "hurricane" for the UK in the lead-up to the Brexit vote but that this had not come to pass.

He replied: "It has been very windy in Spain.

"It's true and, 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 the reason for this had been the behaviour of the British consumer and the housing market, adding:

"If you look at how the consumer performed during the course of the last year, it's almost as though the referendum had not taken place".

Despite this, however, higher prices may yet hit consumers soon, as firms pass on the rise in costs since the June vote.

A Markit Purchasing Managers Index and a survey from the British Chambers of Commerce on Thursday showed that services firms are planning the most widespread price rises since 2011.

This will increase the chances of a rapid rise in inflation.

Haldane said:

"That will, in turn, produce something of a squeeze on the spending power of consumers and may lead them to throttle back somewhat in their spending plans."

Additional reporting by IRN