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UK Lords Committee asks Bank of England to refine forecasts after inflation errors

UK Lords Committee asks Bank of England to refine forecasts after inflation errors

LONDON – The Bank of England has criticized the Lords Economic Affairs Committee for relying on inaccurate inflation forecasts and a lack of intellectual diversity, which the committee said had contributed to persistently low inflation rates. High inflation in the United Kingdom. Acknowledging the bank’s role in strengthening economic confidence since independence in 1998, the panel called for modest changes in its operational approach.

The Lords panel stressed that while unexpected events such as the conflict in Ukraine in February 2022 were unexpected, the persistence of high inflation, which exceeded 11% last year, was also the result of monetary policy errors. To address these concerns and improve the accuracy of economic forecasts, the bank brought in Ben Bernanke in July to overhaul its forecasting models.

The committee noted that the Bank’s expanded responsibilities, including dealing with climate change, may have distracted from its core mandates of financial stability and inflation management. Lord George Bridges emphasized the importance of learning from these mistakes to restore public confidence.

In response to post-pandemic recovery and global supply chain disruptions exacerbated by geopolitical tensions, including Russia’s invasion of Ukraine, the Bank raised interest rates when British inflation exceeded 5% in December 2021. However, expectations for subdued inflation were not met due to ongoing supply chain challenges and the end of economic support measures such as the government furlough scheme.

The bank’s main objective is to keep inflation close to the 2% target through the base interest rate, which affects lending and savings rates across the country. The Lords Economic Affairs Committee suggests that a reassessment of the Bank’s mandate by the Treasury may be necessary to ensure focus on this objective.

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