The Bank of England said on Friday that it would overhaul the way it forecasts its outlook for the British economy as part of a “once-in-a-generation” review of its process after it was criticized for underestimating inflation.
After a few turbulent years — which included a pandemic, the war in Ukraine and a surge in inflation — the central bank was accused of bungling its economic forecasts. It has since set out to find ways to convey more clearly what it thinks will happen to economic growth and inflation, especially in times of high economic uncertainty.
“We have a once-in-a-generation opportunity to update our approach, in a world that, I’m afraid, remains highly uncertain,” said Andrew Bailey, the governor of the Bank of England.
Last summer, the central bank’s governing body commissioned a rare review, which honed in on the inflation forecast, a crucial part of setting interest rates and other monetary policy decisions. The bank asked a former Federal Reserve chair, Ben S. Bernanke, to lead the review.
After eight months of scrutinizing the bank’s staff, processes and technology, Mr. Bernanke provided 12 recommendations, which included ditching some of the ways it publicly presents its inflation forecasts, reconsidering the assumptions that underpin the forecasts, evaluating forecasting errors more closely and investing in upgrading software and economic models.
The bank said it was committed to carrying out all the recommendations. It added that it would need to put in “substantial investment” to develop the data, modeling and staff to support the forecasts. The changes will take awhile to put in place, and the bank will provide an update on its progress before the end of the year, Mr. Bailey said.
