Good bye fan charts, hello scenarios. Interesting news from the Financial Times this morning, that having completely missed the post-pandemic inflation spike, the Bank of England is now considering a "once in a generation overhaul in forecasting". The proposed shift will see the dumping of the so called "fan charts" and the adoption of "scenarios" as a way to signpost future uncertainty. Will this prove to be more successful? Unfortunately, I remain sceptical. Unless the Bank fundamentally changes the way it thinks about the future, which at the very least this should include:
Introducing genuine diversity and challenge into their thinking. Groupthink and confirmation bias are two of the most significant cognitive barriers to successfully navigating uncertainty. If they continue to have the same conversations, with the same people in the same way, don't expect different outcomes.
Diverge in their thinking before they converge. Understand and explore the deep macro drivers and their interplay, before focusing on purely economic factors. If you had know which signs to look for, war in Ukraine and the supply chain shock that followed, was all too foreseeable.
Give up on the false belief that they can accurately predict the future. I would argue that this has always been the situation and is not a case of the much touted and highly volatile "new normal". I have written about the many limitations and pitfalls of predictions before.
Identify, scan and monitor early warning signals that indicate the world is shifting in a different direction. Having thought such a possibility through in advance, "the prepared mind can act in time".
Finally, manage the markets' expectations accordingly. Engage key stakeholders in your thinking, your assumptions but as per point 1. be open to challenge.
Good luck to the Bank but I won't be holding my breath!