TURNING-POINT PREDICTION FOR THE UK USING CSO LEADING INDICATORS

This paper examines the performance of the CSO's leading indicators for predicting turning points in the UK growth cycle. Three methods for extracting a signal are considered: a simple mechanical rule based upon the direction of consecutive movements in the leading indicator and two probabilistic models, namely a standard Bayesian procedure and the sequential probability model. The results suggest that usefulness of the shorter leading index is limited and typically outperformed by naive, non-indicator methods. The longer leading index performs only slightly better showing a lead time of between four and six months in relation to the reference cycle.