Forward looking UK interest rates: a point and figure chart approach

Abstract

The advent of the European single currency and the UK’s decision not to participate in the Euro start‐up has placed the UK interest rate policy in a pivotal position. However, the competing fundamental positions are unclear with irreconcilable targets, a regime change or new paradigm, and supported by a poor forecasting record. In this paper an alternative approach is considered, dispensing with fundamental ideology. Forward looking interest rates are based on pattern recognition and congestion. This approach assumes that the data series can be interpreted as a memory pattern using past performance. Attention is focused on the votes of constituent members of the Bank of England’s Monetary Policy Committee. The point and figure chart is able to identify structural breaks in the data, thus only relevant time periods need be considered. Finally, the results become a leading indicator for competing fundamental models.