The Bank of England has selected Ben Bernanke, the former chairman of the Federal Reserve, to conduct a thorough review of its forecasting failures. This appointment comes as a response to the Bank’s repeated inability to accurately predict UK inflation levels. David Roberts, chairman of the Bank’s court, has tasked Bernanke with examining the Bank’s economic predictions “during times of significant uncertainty.” Bernanke will assume this unpaid role starting this summer and will provide his report to the Bank next year.
UK inflation reached its peak at 11.1% in October of last year and continues to hover at 7.9%, nearly four times the Bank’s 2% target. Bernanke, who served as the chairman of the Federal Reserve from 2006 to 2014, played a crucial role in formulating the response to the financial crisis. Notably, he pioneered the use of quantitative easing (QE) as a mainstream central banking policy worldwide.
Acknowledging the importance of forecasts in assessing the economic outlook, Bernanke stated, “It is right to review the design and use of forecasts and their role in policymaking, in light of major economic shocks.” He expressed his enthusiasm for leading this initiative, emphasizing the need to adapt processes to a world characterized by significant uncertainty.
The Bank’s governor, Andrew Bailey, lauded Bernanke’s appointment, describing him as a distinguished economist ideally suited to lead this review. Bailey highlighted the unprecedented and unpredictable shocks faced by the UK economy and suggested that the review would facilitate the necessary adaptations.
Criticism of the Bank’s performance has been particularly robust among parliamentarians. Harriett Baldwin, chair of the Treasury Committee of MPs, welcomed Bernanke’s appointment, emphasizing the urgency of the Bank learning from recent experiences.
The House of Lords’ Economic Affairs Committee, which counts Lord King, a former Governor of the Bank, among its members, previously labeled QE as a “dangerous addiction.” As early as 2021, before the recent surge in prices, the committee warned that failure to respond adequately to the inflation threat could make it significantly harder to control in the future.
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