Bank of England needs to change their inflation forecasting model

Criticism of the forecasting techniques of the Bank of England has come in an independent report into its operation, courtesy of the former Chair of the Federal Reserve, Ben Bernanke. Not only has he criticised its methods, of gathering information and forecasting, but he's also critical of the conduct of monetary policy arguing that recent incrementalism, and a reticence to raise interest rates more quickly has damaged the economy, contrasting this with the approach of other, bolder central banks.

Here is Larry Elliott's take on the Bernanke Report into the Bank of England's performance: for him, I don't think he's actually as scathing as he might be. I reckon he'd award the Bank a C grade.

I agree with his criticism of the Bank predicating its interest forecasts on what the markets think is going to happen to rates. Given the fact that the MPC contains a number of people who are well-connected in this regard, it strikes me that this is likely to create group-think, and a degree more independence might be more helpful.

From my perspective, I've always thought that the MPC is drawn from a very narrow group of people with very little in the way of a feel for the lives of ordinary people. They would argue that this is part of the remit of the Bank's agents, but I'd disagree; the agents aren't sitting in the room determining the future direction of interest rates, and to me that matters.

So, if the Governor of the Bank of England wants to come calling, I'm sure I could find time to sit on the MPC. I don't think I'd do a job that's any worse than current or former members. And I've met a number of the latter group.