LONDON: Members of the House of Lords, Britain’s upper chamber of parliament, demanded Monday that the Bank of England improved its economic forecasting after failing to predict prolonged surges to inflation.
While insisting that the BoE remained independent of the government on monetary policy, the House of Lords Economic Affairs Committee said in a report that “reforms are vital to improve its performance”.
The report comes as the BoE conducts its own review into forecasting, led by Ben Bernanke, a former head of the US Federal Reserve.
The House of Lords committee criticised the BoE – and other central banks – for believing in 2021 that a surge in global inflation would be temporary, when in fact it lasted far longer and led to multiple interest-rate rises, worsening a cost-of-living crisis.
BoE’s Bailey says getting inflation to 2% will be ‘hard work’
“Twenty-five years after the Bank of England was made operationally independent, it is time to take stock,” noted the committee’s chair, George Bridges.
“While we are of the strong view that independence should be preserved, reforms are needed to improve the Bank’s performance and to strengthen its accountability to parliament.”
He said the bank should focus on its main task of keeping UK annual inflation around a government-set target of two percent.
It currently stands at 4.6 percent, which is the highest inflation among G7 rich nations.
The BoE, however, has played a key role in reducing the rate from a 41-year peak of 11.1 percent, reached in October 2022.
It has achieved this by hiking its main interest rate to the highest level in more than 15 years.
Inflation began to soar around the world in 2021 as economies emerged from Covid lockdowns faced with supply shortages of goods and services amid rebounding demand.
Food and energy prices then rocketed after major grains producer Ukraine was invaded by oil and gas giant Russia in early 2022.
‘Inadequate forecasting’
In a newspaper interview published Monday, BoE governor Andrew Bailey said it would take time for UK annual inflation to fall to two percent – as he once more ruled out interest-rate cuts any time soon.
“By the end of the first quarter next year… we may be a bit under four percent,” he told the Chronicle, a daily in Newcastle, northeast England.
The House of Lords committee noted that “the persistence of above-target inflation… also reflects errors in the conduct of monetary policy, including an over-reliance on inadequate forecasting models” by the BoE.
The central bank “must do more to foster a diversity of views and strengthen a culture that encourages challenge”, it said.
The report added that “parliament should conduct an overarching review of the Bank’s remit and operations every five years”.
This would enhance “parliament’s ability to hold the Bank to account and express its view” on BoE “performance and leadership”.
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