BoE Admits Inflation Forecast ‘Errors’

Conservative
MP
John
Baron
accused
the
bank
of
a
“woeful
neglect
of
duty”
in
not
bringing
inflation
close
to
its
2%
target,
which
he
said
is
causing
“real
pain”
to
households
and
businesses.

Huw
Pill,
the
bank’s
chief
economist,
acknowledged
its
economic
forecasting
models
have
led
to
mistakes.

He
said:
“we
recognise
our
forecasts
on
inflation
have
been
too
low.
We
are
trying
to
understand
why
we
have
made
those
errors,
interpret
those
errors
in
terms
of
the
behaviour,
and
make
an
assessment
in
terms
of
how
it
will
continue.”

It
came
as
the
Bank
earlier
this
month
revised
its
inflation
expectations
after
saying
food
price
inflation
had
been
more
stubborn
than
expected.

It
previously
thought
the
UK’s
consumer
price
index
inflation
could
fall
as
low
as
1%
by
the
middle
of
next
year,
but
it
is
now
predicted
to
reach
about
3.4%.

Bank
Governor
Andrew
Bailey
responded
to
criticism
that
the
bank
had
lost
the
confidence
of
the
public
over
its
economic
modelling
and
interest
rate
decisions.

He
said:
“I
think
there
are
some
very
big
lessons
in
how
we
operate
monetary
policy
in
the
face
of
very
big
shocks.
Because
the
shocks
that
we
have
faced
have
been
unprecedented.

“I
think
there
are
big
lessons
about
how
we
operate
policy
in
that
world
–
in
a
world
of
very
big
uncertainty.”

But
he
stressed:
“we
have
to
make
policy
in
real
time.
We
don’t
make
policy
with
the
benefit
of
hindsight.”

He
also
insisted
that
inflation
had
“turned
the
corner”.

It
comes
ahead
of
official
inflation
figures
on
Wednesday,
which
are
expected
to
show
the
rate
of
CPI
slowed
to
below
double-digits
in
April.

The
bank’s
Monetary
Policy
Committee
opted
to
raise
interest
rates
for
the
12th
time
in
a
row
earlier
this
month,
taking
the
level
to
4.5%.

Bailey
said
at
the
time
that
food
prices
had
been
driven
up
by
a
“very
big
underlying
shock”,
referring
to
Russia’s
invasion
of
Ukraine
in
March
last
year.

He
reiterated
this
view
on
Tuesday,
adding
that
extreme
weather
events
were
partly
responsible
for
the
bank
missing
its
inflation
forecasts.

He
said:
“What
is
possibly
underestimated
is
the
degree
to
which
food
producers
have
purchased
more
forward,
in
terms
of
raw
material
supplies,
than
they
would
usually
do.

“In
other
words
they
have
locked
in
higher
prices
for
longer.”

He
said
extreme
weather
events,
such
as
issues
with
vegetable
crops
in
Morocco,
sugar
prices
still
rising,
and
avian
flu
have
contributed
to
higher-than-expected
food
inflation.

“These
are
genuinely
things
I
think
you
can’t
predict
from
period
to
period,”
he
added.

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