Former Federal Reserve chair, Ben Bernanke, has been appointed to lead a comprehensive review of the Bank of England’s forecasting and related processes in times of significant uncertainty. This comes in response to the unexpected spike in inflation that occurred globally after the pandemic, which the Bank of England failed to predict. Notably, the UK’s inflation rate remains high, reaching nearly 8% year-over-year in June.
Andrew Bailey, the governor of the Bank of England, emphasized the need for reflection and adaptation in light of the unprecedented and unpredictable shocks experienced by the UK economy. He stated, “The review will allow us to take a step back and reflect on where our processes need to adapt to a world in which we increasingly face significant uncertainty.”
Forecasts play a crucial role in assessing the economic outlook for central banks. However, Bernanke points out the importance of reviewing the design and usage of forecasts, especially considering the significant economic shocks that have occurred. It is essential to evaluate their effectiveness and their role in policymaking.
The review is set to commence this summer and will extend until next year, with the findings expected to be published in the spring. This comprehensive evaluation aims to identify areas for improvement within the Bank of England’s forecasting framework, ensuring its effectiveness in times of uncertainty.