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Should ‘consensus’ be scrapped or is it an important benchmark?

ended 07. August 2024

Each time a major macroeconomic dataset is published, it’s deemed to come in either ‘at’, ‘above’ or ‘below’ consensus. If it’s below or above consensus, it can heavily impact markets. Consensus means general agreement. However, given that consensus is determined by a limited number of economists, is it a misleading benchmark — but one that, because it has been used for so long, we simply stick with? 

Look at it another way: can the views of 50 economists be considered the majority view of experts? After all, there are likely to be tens of thousands of economists and many more valid economic commentators in the UK alone. In short, should consensus be scrapped so we can digest macroeconomic figures without benchmarking them against the background noise of a small number of economists? Or is benchmarking against consensus a necessary and important part of understanding the economy? After all, it’s better than relying on one economic forecast, such as from the BoE, OBR, OECD or IMF.

Any thoughts, send them across. Blue sky time!

4 responses from the Newspage community

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Editor
Darryl Dhoffer
Founder at The Mortgage Geezer
Consensus: it’s like that horoscope you half-believe. It’s a quick, easy read on the economic mood, but is it really seeing the future? A handful of economists don’t exactly represent the whole crystal ball gazing community. Maybe it’s time to ask for a second opinion? Or at least wear sunglasses when looking at the consensus forecast blast!
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Scott Gallacher
Director at Rowley Turton
Consensus is absolutely crucial for the layperson to understand a particular issue. I recall during the Brexit referendum when pro-Leave economist Patrick Minford was presented alongside pro-Remain economists to provide 'balance.' However, it wasn't explained to audiences that Minford was very much in the minority with his view, and the 'consensus' was firmly against Brexit.

Without confirming what the consensus view is, it's impossible for the general public to make informed decisions. In any area, there are always experts who disagree with the consensus. Of course, the consensus isn't always right, and it's only fair that outlying opinions are made available, provided it is explained that they are outlying views. But for laypersons, following the consensus is more likely to be correct. For example, if facing an awful medical diagnosis, would you want to take medical advice from one outlying doctor against the consensus?
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Dariusz Karpowicz
Director at Albion Financial Advice
Consensus might not be perfect, but it's the closest we have to forming a cohesive opinion on the economy. Predicting economic trends is like trying to predict the British weather; it's unpredictable and can change with the slightest shift. While relying on a small group of economists may seem limited, it's more reliable than leaning on a single forecast. Scrapping consensus would leave us navigating the economic landscape without a map. It's not flawless, but it provides a necessary benchmark amidst the chaos of economic indicators.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
I am not a fan of market or economic forecasts and predictions. Those making the predictions can say whatever they want and have no responsibility for people who make decisions incorrectly based on the predictions. Forecasts may be useful for businesses to use internally in their own business planning but should not come into the decision making when it comes to personal finance. We are multi decade planners and it is a shame that people are so heavily influenced by someones short term predictions. If you have a good plan and stick to it, the rest is just noise which you can ignore.