Bank of England to Overhaul Its Forecasting After Inflation Surprises
Summary
Britain had managed economic shocks well under existing policy until a series of events, including Brexit and pandemic lockdowns, disrupted the economy. The Bank of England said on Friday that it would overhaul the way it forecasts its outlook for the British economy as part of a “once-in-a-generation” review of its process after it was criticized for underestimating inflation. Last summer, the central bank’s governing body commissioned a rare review, which honed in on the inflation forecast, a crucial part of setting interest rates and other monetary policy decisions. First was Brexit, which restrained trade, then came the pandemic lockdowns that shut off parts of the economy and, finally, a surge in energy prices that shook households and businesses. Mr. Bernanke recommended the bank put less emphasis on the so-called central forecast for inflation, which is partly based on what traders expect interest rates will be, and use alternative scenarios more frequently to show the risks and uncertainty.