The Bank of England to Review Forecasting Amid Criticism
The Bank of England’s governor, Andrew Bailey, has acknowledged that there are lessons to be learned from how the institution has handled recent economic shocks. In response to criticism of its handling of the cost of living crisis, the Bank has appointed former US central bank chair, Ben Bernanke, to lead a review of its forecasting methods. Bernanke, who successfully guided the world’s largest economy through the 2008 financial crisis as head of the Federal Reserve, is expected to deliver his findings in the spring.
The review aims to enhance the Bank’s support for the Monetary Policy Committee’s (MPC) approach to forecasting and monetary policy making during times of uncertainty, according to a statement from the Bank. Members of Parliament have criticized the Bank for failing to predict the extent of last year’s inflation surge, which reached a 41-year high of 11.1%. The headline inflation rate has remained well above the Bank’s 2% target and has proven difficult to bring down.
In May, Bank governor Andrew Bailey admitted that there were “very big lessons” to be learned from how the central bank had handled recent economic shocks. He expressed confidence in Bernanke’s appointment, stating that the renowned economist’s distinguished career made him the ideal person to lead the review. Bailey emphasized the need for the Bank to adapt its processes to a world characterized by increasing uncertainty.
Dr. Bernanke, who served as Fed chair from 2006 to 2014 and was awarded the Nobel Memorial Prize in Economics in 2022, expressed his delight at being given the role. He acknowledged the importance of forecasts as tools for central banks to assess the economic outlook but stressed the need to review their design and use in light of major economic shocks. The Bank’s internal review unit will assist Bernanke in his work, which is set to commence this summer.
The Bank’s next interest rate decision is scheduled for Wednesday, and financial markets and economists widely anticipate a 0.25 percentage point hike as part of the Bank’s ongoing efforts to combat inflation, which began in December 2021. This would mark the 14th consecutive rate increase. The MPC has also expressed concerns about the pace of wage increases, which it fears may contribute to further inflationary pressures.
Alongside the interest rate decision, the Bank will present the latest forecasts from its staff in the Monetary Policy Report.
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