Bank of England to review how it forecasts inflation after pressure from MPs

The Bank of England has agreed to review the way that it forecasts inflation after pressure from MPs.

In a letter to the House of Commons’ Treasury Select Committee on Wednesday, David Roberts, who leads the Bank’s oversight board, said he was discussing how to review forecasts with Governor Andrew Bailey.

“The court discussed the importance of learning from recent experience at our May … meeting and decided to commission a broad review into the Bank’s forecasting and related processes during times of significant uncertainty.

“We agreed the review would be led externally, supported by the Independent Evaluation Office.

“The Governor and I are currently working through how best to commission the review, including in due course the terms of reference and associated resourcing.”

It comes after serious criticism of the Bank’s forecasts over the last year. Inflation has proved difficult to forecast at a time of huge uncertainty, meaning several Bank predictions have turned out to be wrong.

Last month, Bank chief economist Huw Pill told MPs on the committee 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.

His comments came days after the Bank had to revise its forecast for inflation in 2024.

It previously expected Consumer Prices Index (CPI) inflation would drop to 1% by the middle of next year, but in May was forced to change that to 3.4%.

The Treasury Committee on Tuesday requested that the Bank set up a review into these practices.