(CTN News) – To better detect future jumps in inflation, a panel of legislators advised Monday that the Bank of England should have a wider spectrum of opinions among its interest rate-setters and focus more on changes in the money supply.
Former Bank of England Governor Mervyn King is one of several members of the House of Lords Economic Affairs Committee who have voiced concerns that government mandates overburden the central bank.
“Climate change is the most-cited example of the expansion of the remit,” committee chair George Bridges, a Conservative and former Brexit minister, told Reuters.
Subsidiary aims to assist government goals ranging from energy security to homeownership are included in the yearly remits provided to the BoE’s main policy committees, in addition to managing inflation and guaranteeing financial stability.
In March, the House of Lords committee established the investigation in response to inflation reaching a 41-year high last year.
The invasion of Ukraine by Russia was a major factor in the surge, but it started after the Bank of England (and other central banks) had previously indicated that large price increases following the outbreak would be temporary.
According to the parliamentarians, witnesses have stated that the BoE was affected by “a lack of intellectual diversity” and as a result, the bank relied too much on flawed forecasting models. Additionally, there was “a unanimity of view… about the ‘transitory’ nature of above-target inflation” in 2020 and 2021.
In particular, the paper recommended that the Bank of England (BoE) include an analysis of money supply trends in its quarterly predictions. This was a popular strategy for combating inflation in the 1980s but is now mostly irrelevant to BoE policymaking.
After carefully considering the report’s recommendations, the BoE promised to reply fully later.
Former US Federal Reserve Chair Ben Bernanke is currently leading the central bank’s own evaluation of forecasts, which is currently in the middle of the process.
Climate Change’s Lower Priority Sparks Debate on Bank of England’s Objectives
In his annual remit letter to the BoE’s Financial Policy Committee, Finance Minister Jeremy Hunt addressed climate change to a lesser extent last week than 2022.
More time for parliament to discuss these measures should be provided by the House of Lords committee, which also recommended thorough evaluations of the BoE’s performance every five years.
“There (is) a democratic deficit in terms of accountability that we think needs to be plugged,” said Bridges.
According to Britain’s Ministry of Finance, the Bank of England is already subject to frequent parliamentary oversight.