The Bank of England must undergo ‘vital’ reforms to avoid a repeat of its failure to prevent a rise in inflation, a new report says.
A House of Lords inquiry published today has also recommended that the Treasury limit the central bank’s powers and assess whether its leadership could become ‘more streamlined’.
It comes after the Bank and its governor Andrew Bailey came under sharp criticism for failing to raise interest rates quickly enough to prevent inflation from hitting a four-decade high of 11.1 percent last October.
In a report from the Lords Economic Affairs Committee, colleagues say the Bank’s ‘greatly expanded remit’, particularly the inclusion of climate change in decision-making, risks compromising its ability to focus on the core areas of managing the inflation and the maintenance of the economy is ‘at risk’. British financial system stable.
It also recommended that the Bank do more to achieve a ‘diversity of views’ and encourage more people to question its forecasting methods, stressing that its governance and recruitment practices should receive more attention, especially the appointments to the Monetary Policy Committee for setting interest rates. (MPC).
Under pressure: Andrew Bailey was sharply criticized for not raising rates fast enough to prevent inflation from reaching its highest level in four decades
This followed criticism from politicians and former Bank employees that ‘groupthink’ around ultra-low interest rates and money printing left the Bank blind to warnings that inflation was about to rise.
Although it stated that the Bank of England should remain independent, the report recommended that the Bank’s decisions be subject to greater parliamentary scrutiny, recommending a performance review every five years.
‘Reforms are needed. Independence and responsibility must go hand in hand. At the moment we are suffering from a democratic deficit.’
The investigation into the Bank of England’s practices came after it had to raise interest rates 14 times between December 2021 and August this year as it struggled to control inflation after incorrectly predicting that the price rise would be ‘transient’ nature’ would be.
The Bank has already started its own investigation to find out what went wrong.
In July, she called on Ben Bernanke, the former head of the US Federal Reserve, to review how the Bank’s economic forecasts are calculated. The results will be published next spring.