The Bank of England has launched a review of how it makes and uses economic forecasts after facing criticism from MPs for repeatedly failing to predict the rise and persistence of UK inflation.
In a letter on Wednesday, David Roberts told the House of Commons Treasury committee that the central bank’s governing body, which he chairs, had in May decided to commission a broad external review of its “forecasting and related processes during times of significant uncertainty”.
The review comes after BoE governor Andrew Bailey admitted mistakes had been made in dealing with inflation and that it was taking “a lot longer than we expected” to come down.
Markets are now betting on interest rates peaking at 5.75% compared to the current level of 4.5%.
The BoE has faced flak for failing to react fast enough in tackling pricing pressures with critics claiming the Bank should have increased interest rates sooner than they did.
Last month, BoE chief economist Huw Pill told MPs that he and his colleagues were trying to figure out where they went wrong.
“We recognise that our forecasts of inflation have been too low and we are trying to understand why we have made those errors, interpret those errors in terms of the behaviour and then make an assessment as to whether that behaviour will continue into the future,” he said.