By Jens Larsen of the Bank’s Monetary Assessment and Strategy Division and Rain Newton-Smith of the Bank’s Structural Economic Analysis Division.
Business investment is an important component of aggregate demand in the UK economy. But it is volatile and difficult to predict. Surveys of investment intentions provide a timely and useful source of information on future investment plans, and can be used to forecast changes in business investment. This article describes a model that uses surveys of investment intentions to forecast business investment, and compares its forecast performance with the business investment equation in the Bank of England’s macroeconometric model.