The Bank of England is using artificial intelligence and real-time financial data, including information on individual mortgages, to improve its understanding of the economy.
Huw Pill (main picture, inset), chief economist at the Bank of England, revealed that policymakers are increasingly using new technology to identify economic signals that could otherwise be missed.
In an interview with INTEREST from Moneyfacts, Pill said the Bank is using AI models to extract quantitative information from sources including corporate reports, survey responses and conversations between its regional agents and businesses.
Data science is also enabling the Bank to analyse large datasets, including anonymised real-time information on individual mortgages and bank accounts.
‘SIGNAL FROM NOISE’
Pill said the increasingly complex economic environment had made separating meaningful trends from short-term volatility more important for policymakers.
He said: “We have been using AI models to draw more quantitative signals from the qualitative data coming from corporate reports, survey responses, or agents’ conversations with their business contacts across the country.”
The Bank is also using web-scraping and other technologies to develop additional sources of information that can feed into its assessment of economic conditions.
Pill added: “Extracting signal from noise has become even more important (and difficult) over the past few years.”
The use of more timely data could be particularly significant for monetary policy given the traditional lag between changes in economic conditions and their appearance in official statistics.
MORTGAGE MARKET
Alternative data and AI is playing a growing role within the Bank’s analysis as the Monetary Policy Committee attempts to make interest rate decisions against an increasingly difficult economic backdrop.
For the mortgage industry, the use of anonymised individual-level mortgage data gives policymakers another way of assessing how changes in borrowing costs are feeding through to households.
Movements in Bank Rate do not immediately affect all mortgage borrowers because of the prevalence of fixed-rate deals, meaning the financial impact is felt progressively as households refinance.
More granular and timely information could therefore help policymakers understand how borrowers are responding to higher or lower mortgage costs and how those changes are affecting household finances and the wider economy.
