The Bank of England’s (BoE) internal processes need significant reform after it and other central banks showed “complacency” about the threat of inflation, a House of Lords report has said.
The Lords economic affairs committee said BoE policymakers were too reluctant to challenge conventional wisdom and overly reliant on “inadequate” forecasting models when inflation was brewing in 2020 and 2021.
The BoE has been criticised for its slow response in tackling rising interest rates because they believed the jump in inflation was triggered by the pandemic and the energy crisis would be transitory.
The committee’s report published today recommended that BoE recruits should be drawn from a more varied intellectual background to foster a “diversity of views and culture of challenge”.
In particular it called for a review of the way senior BoE appointments are made, pointing out that three of its deputy governors previously worked at the Treasury.
“While we are of the strong view that independence should be preserved, reforms are needed to improve the bank’s performance and to strengthen its accountability to parliament,” said Lord James Bridges, chair of the economic affairs committee.
“The bank should learn from the errors it made — along with other central banks — in the conduct of monetary policy during the recent period of higher inflation,” he added.