Chart 12: Dispersion of inflation and GDP growth outturns since 2007Q3 across the quintiles of the one year ahead Inflation Report fan chart distributions Percentages of outturns GDP growth  70  Inflation  60 50 40 30 20 10 Lower  Higher  Lower  Higher  0  Source: Bank calculations. Notes: For further details on the methodology please see Hackworth et al (2013). 22  BIS central bankers’ speeches  Chart 13: Estimate of the proportion of MPC minutes covering the topic of “banking”  Source: Bank calculations. Notes: This chart shows the estimated allocation of each month’s MPC minutes to a topic which we label “banking”. The words used most frequently in the topic are bank(s)/banking/banker(s), credit(s), financial/finance, market(s), asset(s), condition(s), money and lend(s)/lending/lender. The estimation of the topics, and the allocation of each set of minutes across all topics is completed using latent Dirichlet allocation as applied to FOMC transcripts in Hansen et al (2014). The lines correspond to: September 2007 when Northern Rock received a liquidity support facility from the Bank of England; September 2008 when Lehman Brothers filed for bankruptcy; June 2011 when speculation and uncertainty about the euro area sovereign debt crisis started escalating; June 2011 when ECB President Mario Draghi delivered his “whatever it takes” speech. Chart 14: Estimate of the proportion of MPC minutes covering the topic of “banking” and major UK banks CDS premia  Source: Bank calculations and Bloomberg. Notes: The blue and vertical lines are the same as Chart 13.
Since these market-based measures were affected by risk illusion, it is reasonable to assume the MPC suffered that same illusion. Just like the students in the Asch experiments, MPC yielded to the wrong answers given by other financial actors. The MPC were looking for their keys under the wrong lamppost. It is too soon to tell whether any collective blind-spots remain. But compared with the precrisis period, the Bank today has two extra pairs of policy eyes through the PRA and FPC. Joint meetings between the MPC, FPC and the PRA Board now take place. These help strengthen the committees’ peripheral vision and are a safeguard against groupthink. As for economic forecasting, this is the most inexact of sciences. The Bank has already undertaken an external review of its forecasting procedures. 62 And it also has taken a sequence of measures to improve this process and the transparency around it. 63 This has included publishing more information on forecast inputs and outputs. This is progress. My own view is that improvements to the Bank’s forecasting process have some considerable distance still to travel. Since the crisis, the Bank’s forecast errors for output and inflation, like those of external forecasters, have tended to be one-sided and serially  61  This is part of a larger, on-going research project led by Stephen Hansen (UPF), Michael McMahon (Warwick) and Andrea Prat (Columbia University). 62  Stockton (2012).