IEA - Bernanke Review Exposes Bank of England’s Failings

12 Apr 2024 03:55 PM

Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, commented on former U.S. Federal Reserve Chairman Ben Bernanke’s review of forecasting and communications at the Bank of England 

“The Bernanke Review has exposed serious shortcomings at the Bank of England, which ultimately deepened the cost of living crisis. It is a tough read and the response from the Bank is even harder to follow. This is not a great start to a process that is supposed to improve the transparency of policymaking.

“One positive is the recommendation that more work should be done on improving the understanding of the ‘monetary transmission mechanism’. This may be as close as we will get to an acknowledgement that the Bank has paid too little attention to the monetary drivers of inflation. But it is only one of many recommendations and could easily be lost. The Shadow MPC that meets at the IEA has been on the case here for many years.

“Most of the Review is taken up with practical suggestions about the management and resourcing of the Bank. But the elephant in the room is the lack of diversity of thinking on the Monetary Policy Committee. The risk is that the same mistakes keep being made, just in a more sophisticated way.”

Notes to Editors

Contact: media@iea.org.uk / 07763 365520

• Monetary transmission mechanisms are the precise ways in which monetary policy decisions impact the economy. For example, a rise in interest rates will change people’s expectations about inflation, which in turn impacts wages and spending.
• The Shadow Monetary Policy Committee (SMPC) is a group of independent economists hosted by the Institute of Economic Affairs whose purpose is to monitor the decisions of the Bank of England’s official Monetary Policy Committee and make its own policy recommendations.
• In July 2021, the SPMC was among the first groups to identify the risk of inflation and call for an interest rate rise. At its last meeting in February, the SPMC urged the Bank of England to Cut interest rates to avoid economic stagnation.
• Julian explained the link between inflation and the growth of Broad Money in a September 2023 article for The Spectator. Read the piece here: Is printing too much money the real cause of inflation?

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.