BoE Computer model soon useless

A disturbing report in The Observer that seems to confirm most thinking people's view that Mervyn King and his cronies on the MPC do not have a clue what they are doing, read here, a quote: Interest rates have now been slashed to an unprecedented low of 1% to cushion the economy against the worsening downturn; but they were left on hold for much of last year, as MPC members fretted about the risk that rising oil prices would affect the public's "inflation expectations", which would in turn lead to surging wages. Critics say using BEQM to guide its decisions had blinded King and his colleagues to warning signs in the outside world.

Using information gleaned from publicly available documents and Bank insiders, Fathom's number-crunchers have constructed a replica of BEQM. It shows that the model actually stops working when interest rates hit zero - an increasingly pressing possibility - and fails to allow for the impact of a credit shortage on the economy.