All forecasts are hedged around with uncertainties, and for some time we have been publishing error bands on our forecasts. The National Institute was the first mainstream forecaster to provide an indication of the chances that two key forecast variables, output growth and inflation, would be in particular ranges. The error ranges we used were calculated from past forecast errors and on the assumption (consistent with the data) that these errors were normally distributed. Shortly after we began publishing our probability bands, the Bank of England started to provide its own indication of the error range for its inflation forecasts and, some time later, for its projection of output growth. The Treasury, by contrast, provides no indication of the chance that the Government current account will be in any particular range although this is arguably the most important variable discussed in the Pre-budget Report.
How Do Oil Price Forecast Errors Impact Inflation Forecast Errors? An Empirical Analysis from French and US Inflation Forecasts