Recommendation 12

In 2021 the Bank of England, like many central banks, incorrectly forecast that above-target inflation would be “transitory”. This was in part thanks to a lack of challenge as regards its modelling and forecasts. We therefore welcome the Bank’s new externally-led review into its forecasting capabilities. This review should seek to explain the value of models that seldom predict anything other than a return to the two per cent target over their forecast horizon. We hope the review also considers whether appointments, both of officials of the Bank and members of the MPC, are creating sufficient diversity of thought.