The Bank of England announced a major overhaul of its economic forecasting process, following criticism for consistently underestimating inflation in recent years. Governor Andrew Bailey described the review as a “once-in-a-generation opportunity” to update the bank’s approach in a highly uncertain world. The review, led by former Federal Reserve chair Ben S. Bernanke, resulted in 12 recommendations aimed at improving the accuracy and transparency of the bank’s economic forecasts.
One of the key findings of the review was that the Bank of England’s forecasting errors were due to a combination of rapidly changing economic conditions and flaws in the forecasting process itself. The central bank committed to implementing all the recommendations made by Mr. Bernanke, which included updating software, reevaluating forecasting assumptions, and investing in staff and data resources. The changes will take time to put in place, with an update expected before the end of the year.
The importance of accurate economic forecasts was emphasized, particularly in relation to setting interest rates to maintain price stability. The review highlighted the significant role that inflation forecasts play in the bank’s communication with the public and traders. Moving forward, the Bank of England will focus on providing clearer, more transparent forecasts that reflect policymakers’ expectations of future interest rates to avoid confusion and restore credibility in its economic projections.
