A Forecasting Model for the United Kingdom Invisible Account

The National Institute has for some time prepared and published regular forecasts for periods up to 18 months ahead of the United Kingdom's balance of payments on the invisible items in the current account as well as visible trade. The results for the invisible items have compared fairly well with those for visible trade, perhaps because the latter have until recently been the more irregular and difficult to predict. Moreover the very stability of the invisible balance during the 1960s suggests that either many of the items involved are comparatively insensitive to changes in the general economic climate or the effects of such changes were largely offsetting. In neither case could regression analysis be expected to give wholly satisfactory results, particularly in view of the poor quality of some of the data. Nevertheless it seemed worth while to see whether some of the invisible items could with advantage be predicted by formal methods rather than, as in the past, by assessing current trends and making purely ad hoc allowances for such factors as the likely course of shipping freight rates, oil prices and the level of economic activity in the United Kingdom and overseas.