Winston Economics consultancy had a great year in 2022-2023 having been at the forefront of the macro-economic analysis in the country: we had identified an error in macro-economic assumptions of the Bank of England’s stress testing model. For economists this should be an exciting find because it highlights how the Government’s agencies spend the public money.
Our discovery was about a discrepancy in the relative movement of two of the macro-economic variables published on the Bank of England website in 2022. Their co-movement should have been in opposite directions, however, the stress testing model assumed otherwise. We had collected historical data to show how these two variables should have been applied in the model, which confirmed that the difference with the real data was significant and the impact on the stress testing results could have been enormous, including because the error throws doubt onto the whole model.
The Bank of England is yet to come back to us to acknowledge the error. As we know from the events in the USA earlier this year, even there some economists had started talking about the validity of the stress testing model after several regional and specialist banks had a virtual run in. Indeed, brief research into the latest thinking in this area from international financial organisations had uncovered that there is a trend to recommend that central banks should keep stress testing models as abstract as possible, i.e. vague and meaningless. This is, of course, entirely illogical because the models then do not reflect the real economic conditions, which could undermine the banking system by hundreds of millions or several billions of pounds sterling or US dollars.
Winston Economics has worked on an R&D project to develop income-based pricing software prototype, which means our balance sheet shows we are eligible for R&D credits. The company also has debtors and is in the process of litigation with a company developing an alternative scheme in a historic town of Frome. The report found that the scheme was positive for the local economy and was shared with the planning authority in spring 2022. Winston Economics is, as always, providing our clients with the best possible economic advisory services.
