Other policy makers have faced similar challenges, and have found highly innovative and effective ways to overcome them, such as the Treasury’s furlough scheme. And of course the intellectual challenges faced by economic policy makers have been tiny compared with the very substantial challenges faced by the healthcare and other key workers who have had to tackle the Covid pandemic itself, as well as those who have suffered from the disease. My previous Strand Group lecture, “The First 50 years of the Government Economic Service”, touched on some of that earlier experience. 2 My MPC colleague Silvana Tenreyro made a similar observation in her 2018 speech on models in macroeconomics. 3 Or to give the quote from Korzybski (1933) more fully: “A map is not the territory it represents, but, if correct, it has a similar structure to the territory, which accounts for its usefulness”. 4 It’s not for nothing that the Bank of England’s central forecasting model is known as COMPASS. 1  2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  Figure 1: The MPC’s approach to its forecasts has evolved during the pandemic  3  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  3  An evolving approach to the outlook  The MPC, supported by the efforts of Bank of England staff, has continued to make use of forecasts throughout the Covid period.
Developments since May The MPC’s next Monetary Policy Report is not published for another three weeks, and we have not yet begun to discuss what our updated August forecast might look like. What I am going to discuss today will be the MPC’s initial assessment, as set out in the minutes of our June meeting, of what we had learned about the economic outlook since our May MPR, as well as my own interpretation of the very latest data which have come out over the last three weeks since the June MPC meeting. Global growth appears to have been somewhat stronger than we expected in May, largely due to upside news in the euro area. Activity in the US so far looks to have been broadly in line with expectations; but CPI inflation in the US has now reached 5.4% - its highest level since 2008, and 0.5pp above market expectations at the time of release. Despite that, global yield curves, led by US Treasuries, have first risen and then fallen back in recent weeks; the ten year gilt yield is now 10bps lower than at the time of our May forecast, while ten year US Treasury yields are 20bps lower. Bank staff models suggest US factors have been the dominant driver of the movements in UK yields since May.