LONDON: The Bank of England (BoE) said Friday it would implement a “substantial upgrade programme” to improve its economic forecasting, after a probe found it had “deteriorated significantly” in recent years.
The central bank’s poor performance in this area has been the source of frequent criticism, and led it to call in former US Federal Reserve chief Ben Bernanke to investigate.
“We should learn the lessons from the difficulties that we faced,” BoE boss Andrew Bailey said Friday as Bernanke, who ran the Fed between 2006 to 2014, published his findings.
In response to the conclusions, the BoE said it would reconsider its current practice of issuing central projections for the economy, and would instead publish more alternative scenarios.
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It hopes this will allow it to take a broader account of economic risks and “to articulate better differences of view among committee members”.
The central bank said it also needs “substantial investment” to develop its data, modelling, forecasting and evaluation infrastructures, and in hiring “expert staff” to support them.
The BoE received particularly strong criticism for underestimating the persistence of UK inflation in the wake of the pandemic and the war in Ukraine, and for possibly taking too long to raise interest rates.
After climbing to over 11 percent at the end of 2022, inflation was slower to fall in the UK than in many other comparable countries.
On an annualised rate, inflation fell to 3.4 percent in February, but still remains above the bank’s 2 percent target.
To combat rising prices, the BoE tightened its monetary policy 14 times before holding interest rates at a 16-year high of 5.25 percent in recent months.
The bank is not alone in being the target of growing criticism about economists’ inability to make accurate forecasts in the face of repeated crises.
Bernanke’s study points out that the accuracy of BoE forecasts has “deteriorated significantly in the past few years”, but added that other central banks and UK forecasters fared little better.
He attributed much of the error to “a series of large shocks that were, by their nature, difficult to forecast”.
The BoE promised to publish more details on its action plan by the end of the year.
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