Nobel Prize-winning economist and former Federal Reserve chair Ben Bernanke will lead a review into the Bank of England’s forecasting processes, to review the Bank’s recent economic predictions, which have had a poor track record.
Bernanke will lead a review into the Bank’s “forecasting and related processes during times of significant uncertainty”. It will look at “the role of the forecast” and how this should inform the Monetary Policy Committee’s decisions to raise or lower interest rates.
It comes as the Bank has come under fire for its projections of the cost-of-living crisis, which Threadneedle Street’s top economists expected to ease much more quickly than it has. At the same time, the Bank initially projected a deep recession this year, but since revised these to now expect no rcession this year at all.
Bernake is one of the world’s most famous economists. He served as chairman of the US Federal Reserve during the global financial crisis, making him one of the most significant figures in the global economy during the period.
His record as Fed chair divides experts, with some believing he avoided turning a recession into the next Great Depression, while others argue he failed to stimulate the economy enough after the initial crash, leading to a prolonged slowdown.
He won the Nobel Prize for Economics last year for his research on financial crises, conducted before he became Fed chair.
Andrew Bailey, Governor of the Bank of England, said: “Dr Bernanke is a renowned and award winning economist whose distinguished career makes him the ideal person to lead this review. The UK economy has faced a series of unprecedented and unpredictable shocks. The review will allow us to take a step back and reflect on where our processes need to adapt.”
Bernanke said: “Forecasts are an important tool for central banks to assess the economic outlook. But it is right to review the design and use of forecasts and their role in policymaking, in light of major economic shocks. So I am delighted to be leading this work for the Bank.”
The full terms of reference for the review will be published “in due course”. The review will start this summer and go into 2024. Findings will be published in the spring.
David Roberts, Chair of the Court of the Bank of England, said: “It is crucial that the Bank continuously learns and adapts as an organisation. It is right that we take an independent and objective look at the processes which underpin the MPC’s policy decisions and I am delighted that Dr Bernanke has agreed to lead this work.”
The Bank of England’s Monetary Policy Committee will meet next week to make its next interest rate decision. A 14th consecutive increase is seen as almost certain.
