Exterior of the Bank of England in London, UK.
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Bailey told CNBC that comparing and contrasting the U.S. policy perspective with that of his own country was “invaluable.”
“This is a once-in-a-generation opportunity to update our forecasts and ensure they are fit for a more uncertain world,” Bailey said.
The recommendations consist of three main areas: improving the Bank’s forecasting infrastructure, supporting decision-making within the Monetary Policy Committee (MPC), and better communicating economic risks to the public.
These include abolishing the central bank’s long-held “Fanchart” forecasting system and introducing a revamped forecasting framework.
Fan charts, which show various data points expected in the future, have long been used by central banks to illustrate the probability distributions that form the basis of inflation forecasts. However, the model has come under intense criticism in recent years for failing to accurately capture inflationary pressures and for failing to fully represent the range of the MPC’s views.
The review said the chart had “outdone its usefulness” and recommended a new model that better reflected commissioners’ diverse opinions. The Bank of England added: Currently relying more on central forecasts than other central banks, it may not fully account for the broader risks and how inflation expectations are ‘unlocked’.
Additionally, the review says banks need to improve their communications with the public, suggesting they place less emphasis on central forecasts and simplify policy statements to make them less repetitive. I am. ” Data manipulation was “a top priority.”
The Bernanke Review was launched last summer to assess central banks’ struggles to accurately predict the huge spike in global inflation following Russia’s invasion of Ukraine.
The central bank was widely criticized for raising rates too slowly and was subsequently forced to raise its main bank interest rate to 5.25%, the highest level in 15 years.
Now, with inflation falling faster than the MPC expected, some economists argue that the MPC is making the same mistake in the opposite direction, cutting rates too slowly.
Bernanke said the difficulty of forecasting is not unique to central banks, but added that he hoped central banks would draw relevant lessons from recent experiences.
“The forecasts and policy challenges that have faced the Bank of England in recent years have not been unique. Nevertheless, they have served as a stress test for forecasts at the Bank of England,” Bernanke said. He pointed out that it is “not intended to judge” policy. decision making.
“Like other central banks and policy institutions, the World Bank will seek to draw appropriate lessons from this experience,” he added.
The review recommended that the Bank take a phased approach to introducing new measures, starting with improvements to forecasting infrastructure. He then said that changes to policy decisions and communications need to be proceeded with “carefully”.
Claire Lombardelli, the central bank’s next deputy governor, will be responsible for leading the implementation of these recommendations when she takes office in July. The bank said it would provide an update on the proposed changes by the end of the year.
— CNBC’s Elliott Smith contributed to this article.
