Ben Bernanke criticizes the Bank of England for its failed economic forecasts: but boss Andrew Bailey makes no apology

Andrew Bailey has refused to apologize for failing to control inflation after a review exposed “significant deficiencies” at the Bank of England.

The governor said “we don’t look back” when asked if he regretted findings suggesting the accuracy of economic forecasts had “deteriorated significantly” since the pandemic.

In a scathing report, former US Federal Reserve Chairman Ben Bernanke took aim at the Bank’s “outdated” software and its “deficiencies” in tracking future levels of inflation.

Bernanke, who led the U.S. central bank from 2006 to 2014, said a lack of investment had prevented staff from making useful analyzes about what might happen to the economy.

“The most serious problems we found in our review are deficiencies in the Bank’s forecasting infrastructure – the tools that staff use to produce the quarterly forecast and supporting analyses,” the report says.

“Some key programs are outdated and lack important features.” The review was launched last July after the Bank was criticized for raising interest rates too slowly and allowing inflation to spiral out of control to a 40-year high of 11.1 percent.

This led the Bank to subsequently raise rates to 5.25 percent, a level at which they remain.

But with inflation falling, critics have warned that the Bank is making another mistake by refusing to cut rates. Julian Jessop, an economics fellow at the Institute of Economic Affairs think tank, said the review had “exposed serious shortcomings at the Bank of England, which ultimately deepened the cost of living crisis”.

Bernanke made a number of recommendations on how the Bank could improve, including modernizing the way it forecasts inflation.

And while Bailey welcomed the report’s dozen recommendations, he said: ‘We don’t look back. “I don’t think it’s appropriate to consider whether we would have made different decisions. “But he added, ‘Would we have communicated our decisions differently? I think the answer is yes, we would.’

Inflation surpassed the Bank’s 2 percent target at the end of 2021 amid the fallout from the pandemic.

The Bank’s Monetary Policy Committee, which sets interest rates, initially believed this jump was “transitory.”

But inflationary pressure was more aggressive than expected following the Russian invasion of Ukraine and began to affect household spending.

Between December 2021 and August 2022, the Bank of England raised interest rates 14 times to try to reduce inflation.

But inflation hit a 40-year high of 11.1 percent in October 2022 and remains above the 3.4 percent target.

Despite his scathing assessment, Bernanke noted that the errors were “not unique” and had been observed at other central banks around the world.

He said: “The Bank of England suffered a common deterioration in the accuracy of its forecasts, but we found that overall its performance is broadly in the middle of the pack.”