The Bank of England has indicated it is unlikely to publish interest rate forecasts from its monetary policy committee as part of its comprehensive operational overhaul. Clare Lombardelli, deputy governor, expressed concerns that such publications could potentially undermine the committee’s credibility.
Speaking at a Monday briefing, Lombardelli emphasised the complexity of the issue, stating that publishing expected rate paths might suggest an unrealistic level of certainty about future monetary policy decisions. The reform initiatives, inspired by recommendations from former US Federal Reserve chairman Ben Bernanke, are expected to take up to five years to implement.
The transformation represents the most significant change since the Bank gained operational independence in 1997. Central to these reforms is a shift towards publishing various economic scenarios for consideration, moving away from the traditional emphasis on single central forecasts for growth and inflation.
The Bank has already begun implementing changes this month by introducing three distinct cases for potential inflation trajectories. These scenarios aim to better account for contemporary economic uncertainties, including energy price shocks, trade barriers, and geopolitical instability.
Criticism has followed the Bank since late 2021 for its delayed response to raising interest rates during the energy price crisis, which saw inflation peak at 11.1 per cent. Currently, the MPC is carefully managing monetary policy, having implemented two rate cuts this year while maintaining vigilance against potential inflation resurges.
Lombardelli, who supported the recent decision to reduce interest rates to 4.75 per cent, cautioned that inflation risks remain. She highlighted that wage growth, currently exceeding 4.5 per cent, needs to decrease to approximately 3 per cent to align with the Bank’s 2 per cent inflation target. The reform package will also include enhanced modelling processes and increased staffing levels to address expertise gaps identified in Bernanke’s review.
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