How the BoE makes the Office for Budget Responsibility’s job harder

At risk of this blog degenerating into a broken record, if it has not already…

Today at Treasury Committee, Robert Chote and Steve Nickell were grilled about the Office for Budget Responsibility’s forecasts for the UK economy and government finances.

The conversation turned to the matter of whether the OBR agreed with the forecast for interest rates implied by financial markets, on which their macro forecast is conditioned, and on which the BoE also condition their forecasts.

This was yet another illustration of why it would be better if the Bank of England’s Monetary Policy Committee both formed and then disclosed its own best view of what it was going to do with interest rates.

Quite rightly, Steve Nickell pointed out that [paraphrasing here, without the transcript] ‘we are not in a position to form a view about rates that is superior to that of the markets’.

But, how strange!

One delegated authority of government, charged with setting monetary policy – the Bank of England – has to form a view about future rates in order to discharge its duties properly.  But because it thinks that disclosing that view would be a poor communications strategy, another delegated authority of government – the OBR – charged with monitoring fiscal policy, can’t have access to that view in order to do its job of holding the government to account over fiscal policy.  And must instead rely on the market path for future interest rates.  A path that Deputy Governor Ben Broadbent recently explained is not a terribly good indicator of what the MPC will actually do.

And so those left wondering just what will happen to government finances, and whether the Chancellor’s plans hold water, are less the wiser as a result.


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