Chapter 4: Diversity of thought and culture
101.The judgment of the Bank’s policy committees and officials, the robustness of models used in forecasting, and whether the Bank’s governance provides for a culture of internal challenge, were all matters covered in evidence received from witnesses. The evidence highlighted that when the Bank exercises its judgement, these factors can significantly affect the Bank’s performance.
Diversity of thought
102.Witnesses voiced concerns about diversity of thought in the economics profession, which, they suggested, may reflect the way macroeconomics is taught in universities and practiced in the central banking community.187 The Trade Union Congress said that it was “unclear whether anything substantial has been done to access wider opinion across all important macro policy institutions since [the 2008 financial crisis].”188 Professor David Aikman, Professor of Finance and Director at the Qatar Centre for Global Banking and Finance at King’s Business School, highlighted how people are joining the Bank of England having completed master’s degrees in economics, finance or PhDs in the same subject. He emphasised: “They are not joining with very heterogeneous views about how the economy works or how the transmission mechanism of monetary policy works.”189
103.Professor Goodhart was of the view that a lack of diversity of thought was more of a wider central bank issue.190 He considered that “diversity at the moment [in the Bank of England] may not involve the inclusion of some people with views that you would prefer, but it certainly includes people with very differing views—much more differing, in my view, than you will find in almost any other central bank.”191
104.Endorsing this latter point, a few witnesses rejected the suggestion that the Bank has been particularly lacking when it comes to diversity of thought. Sir Paul Tucker said that he did not believe there “was a great deal of groupthink in the past.”192 Professor Reis went further: “Groupthink has not been a problem. You can see the diversity and the variety of views, as well as the large disagreement in the voting record in the MPC over the last few years. That pretty clearly rejects the view there is very strong groupthink affecting its decisions.”193
The Bank’s approach to inflation post-2020
105.As part of discussions about diversity of thought, many witnesses pointed out that throughout much of 2020 and 2021, the MPC unanimously forecast that above-target inflation would be “transitory.”194 Witnesses considered that this highlighted the absence of any challenges (or at least publicised challenges) to the consensus from within the Bank.195
106. The Bank stated in its August 2021 Monetary Policy Report:
“CPI inflation has risen markedly, to above the MPC’s target of 2%, and is projected to rise temporarily to 4% in the near term. The rise largely reflects the impact of the pandemic as the economy recovers. This has led to higher energy and goods prices, which in turn reflect rising commodity prices, transportation bottlenecks, constraints on production, and strong global demand for goods. As such, above-target inflation is expected to be transitory, as commodity prices stabilise, supply shortages ease and global demand rebalances.”196
107.The Bank rate was lowered from 0.25 per cent to 0.1 per cent in March 2020. The MPC was then unanimous in the view that above-target inflation would be “transitory”, holding the Bank rate at this very low level until November 2021 when two members dissented.197 Only in December 2021 did the Committee vote to raise the Bank rate back to 0.25 per cent. From March 2020 to November 2021, inflation accelerated from 1.5 per cent to 5.1 per cent eventually reaching 11.1 per cent in October 2022.198
108.The Bank was not alone in projecting inflation rates close to target during much of the period in question. As the February 2021 Monetary Policy Report noted, the average of other forecasters’ central projections for 2022 Q1 and 2023 Q1 were 1.9 per cent and 1.8 per cent respectively. However, the actual respective outturns for March 2022 and March 2023 were 7 per cent and 10.1 per cent.199
109.The views of witnesses also focused on the Bank’s apparent disregard for accelerating money supply growth. Throughout 2020—when the annual growth in the M4 money supply reached double digits200—until August 2022, there was no discussion of money supply measures in the Bank’s Monetary Policy Reports. Professor Congdon was of the view that overlooking the quantity of money as an explanation for monetary behaviour, or for the behaviour of the economy or inflation, was a product of groupthink.201
110.From 4.8 per cent in January 2020, the annual growth rate in the M4 monetary aggregate had accelerated to 13.4 per cent by end of the year (see Figure 6).202
Figure 6: UK bank rate versus CPI and M4: January 2020 to January 2022
Source: Office for National Statistics, ‘Consumer price inflation, historical estimates and recent trends, UK: 1950 to 2022’ (May 2022): https://www.ons.gov.uk/economy/inflationandpriceindices/articles/consumerpriceinflationhistoricalestimatesandrecenttrendsuk/1950to2022 [accessed 26 September 2023], Bank of England, ‘Official Bank Rate history’: https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp [accessed 26 September 2023] and Bank of England, ‘Data viewer’ (2018–2023): https://www.bankofengland.co.uk/boeapps/database/fromshowcolumns.asp [accessed 26 September 2023]
111.According to Stephen D King, “money supply was ignored in a rather foolish fashion … I cannot see why policymakers did not look at that and think “This is odd”. You do not have to be a monetarist to think that.”203 Professor Goodhart told us: “If you get … very large changes [in money supply] … at least you should take notice. The central bank should ask itself, “Does this have any meaning?”204 Writing in The Telegraph, Roger Bootle argued that central banks appeared to downplay money supply growth rates that “would have set the alarm bells ringing not many years earlier”, which, along with an over reliance on “their own credibility, built up over so long … was a case of groupthink on a global scale”.205 He told us:
“Over the past few years … we have gone from a situation in which economic policy in general, and certainly monetary policy, was governed entirely according to what was happening to a certain definition of the broad money supply to one in which, apparently, the Bank took no notice of monetary aggregates at all. Both those extreme positions are wrong.”206
112.Professor Congdon elaborated on this issue by emphasising that there “is a divergence in macroeconomics between those who want to interpret inflation entirely by looking at the labour market and to explain what happens to national income and national output by the income expenditure mode … and those like me who would defend the quantity theory of money.”207
113.Some witnesses considered that a collective, misplaced confidence about the inflation outlook may have reflected past experience. Martin Wolf said: “I may be mistaken, but I suspect that there was nobody in the Bank of England in 2020 who had any experience of a relatively high inflation environment. This was the norm and everybody got used to the idea of low for longer.”208 Stephen D King similarly noted: “[The] idea that you can simply assert that inflation is going to be low in the future because it has been low in the past [is] not good enough. The idea that credibility is the only thing that matters is a mistake.”209 Mr King said that groupthink may have reflected “an obsession with deflation [and a] fear that the West was heading in a Japanese-type direction.”210
114.Professor Skinner told us that it was “important to think about groupthink in the slightly broader sense of how it can contribute to inertia and, in the political economy sense of the word, how it can form a consensus view about how the central bank is used in society and its relationship with political actors”.211 The political aspects of central bank decision-making were also raised by Edward Chancellor: “With regard to the question of groupthink and the central banks’ attitude to inflation, the other concept, aside from groupthink, is cognitive dissonance—people failing to see something that they do not already believe, particularly when they have made an error.”212
115.When asked whether there had been challenge to the “transitory” view on inflation during the COVID-19 pandemic, Andrew Bailey told us:
“That challenge built up as 2021 went on. Indeed, I would say I was myself part of that challenging. I remember making a speech in September 2021, saying that I thought the supply chain shock had transitory elements; even by then I was worried about what we were beginning to see. We were puzzled by the labour market at that point.”213
116.When subsequently asked about groupthink in the economics profession and the Bank’s limited public discussions about the money supply, Mr Bailey explained that the Bank had considered money supply growth.214 In correspondence, he noted that two things stood out during the COVID-19 pandemic: “First, M4ex grew rapidly.215 This was the product of the Bank’s quantitative easing (QE) operations … The second point is that there was no pick-up in M4Lex. This is consistent with the limited recovery of economic activity … and the build-up of savings by households and companies” (see Figure 7).216 In essence, the Bank was of the view that although there had been an increase in the money supply, it had not circulated into the wider economy to facilitate inflation.
117.However, it is important to distinguish the separate roles of money and credit, and in particular the impact of a build-up of money balances on demand. Stephen D King noted that while the velocity with which money circulated during lockdown certainly collapsed, it surged once the lockdown ended resulting in an acceleration in nominal demand.217 Mr King added that “the urgency with which support was provided in 2020 when inflation was “well below the target” was not matched by similar urgency in the opposite direction when inflation threatened to move above target.”218
118.When asked whether it might be helpful to have the Bank’s money supply considerations reflected in the Bank’s Monetary Policy Reports, Andrew Bailey replied that this was a “fair point.”219
119.Mr Bailey was also asked to elaborate on his theory of inflation. He said: “The economy is hit by all sorts of shocks but ultimately it is the balance of supply and demand … there is a money impact to that … but the balance of supply and demand across a number of parts—it is not just an activity; it is also in the labour market—is key to that.”220
Figure 7: 12-month growth rates of M4ex and M4Lex
Source: Letter from the Governor of the Bank of England to Lord Bridges of Headley Chair of the Economic Affairs Committee (6 July 2023): https://committees.parliament.uk/publications/41079/documents/200046/default/
120.Andrew Griffith MP was of the view that “one should always be concerned about groupthink … The evidence is that there are also many cases where members do not act as a group. There are split votes and there are internal and external members of the MPC.”221
121.According to the evidence we received, there is perceived to be a lack of intellectual diversity in many central banks, including the Bank of England. Witnesses suggested that this contributed to insufficient challenge on the MPC in 2020 and 2021 which allowed a unanimity of view to prevail about the “transitory” nature of above-target inflation. While every member of the MPC must be committed to fulfilling the Committee’s objectives, it is imperative that its membership comprises people of different backgrounds and economic perspectives. The Bank must be pro-active in encouraging a diversity of views and a culture of challenge. This should be reflected in its hiring practices and its appointment procedures.
122.There is a notable absence of any detailed discussions about money supply in the Bank’s published Monetary Policy Reports. We recommend that the Monetary Policy Reports should include discussion of the main monetary aggregates, accompanied by an analysis of their relevance to the Bank’s inflation outlook and the various scenarios the Monetary Policy Committee considers. This would ensure adequate transparency in how the Bank approaches its monetary policy decision-making.
Forecasting
123.While forecasting is an important part of the process that informs monetary policy decision-making, the conventional models used222 have been the source of much recent criticism and challenge in the last few years. Through the COVID-19 pandemic, other major central banks also saw inflation outcomes exceed their prior forecasts which may in part have reflected an over-reliance on these models (for a comparison of the Bank of England’s forecasts with the inflation outcomes, see Figure 8.)223
Figure 8: Bank of England CPI inflation forecasts versus inflation outcomes
Source: Ed Conway, (@EdConwaySky), tweet on 11 May 2023: https://twitter.com/EdConwaySky/status/1656639947539881985
124.Andreas Dombret told us that “there were no models for the pandemic in the first place, and the structural input to the models caused it not to be understood correctly.”224 By way of international comparison, Otmar Issing said of the ECB in April 2022: “It relied on its forecasting model and this model cannot give the right signals because it is based on the past and cyclical experience, and the pandemic did not cause a cyclical downturn … You need a much broader approach to explaining inflation in a time of structural changes.”225
125.According to Martin Wolf, there are “profound intellectual problems with [DSGE] models”.226 He emphasised that they work well when “things do not change very much … once they are calibrated to past data these [models] are going to be pretty good”. However, when economic conditions do change significantly, he said that “they are likely to give you bad advice.”227 Mr Wolf added: “One feature of these models … is that inflation expectations are self-validating, which is wonderful except when they are not, which happens to be where we are now.”228 Stephen D King made a similar point stating that it “sounds like an Alice in Wonderland argument. [The Bank] is simply saying: ‘We have a target of 2 per cent; we forecast it will be at 2 per cent; there is nothing that is going to happen in the near term that will change that’”.229
126.The efficacy of models in the face of shocks was an issue addressed by David Stockton, Senior Fellow at the Peterson Institute for International Economics, in his 2012 Review of the Monetary Policy Committee’s forecasting capability:
“Virtually all regular economic forecasting exercises exhibit a degree of inertia … [some of this] simply reflects the slowness with which forecasters spot deeper structural problems with the stories underlying their forecasts. In the MPC’s forecasting process, there are few mechanisms capable of acting as a trigger for a fundamental reassessment of the outlook”.230
127.Dr Rajan told us that the prevailing macroeconomic view in central banks is associated with DSGE models, which rarely have a role for the financial sector or money.231 He noted that students are taught this view in universities and schools and they go from there to the research departments of universities before moving to central banks. Dr Rajan added: “It may make sense [for the MPC] to mix it up a little once in a while and have a labour economist, who understands monetary economics but is not wedded to the same models, or a financial economist, who may pay more attention to the financial sector”.232
128.Dr Rajan also elaborated on his experiences with forecasting models and their flaws: “I used to be at the IMF and we used to run our models there. There was nothing monetary policy could not cure.” He intimated that in the face of economic shocks, such models would routinely forecast a return to ‘normality’ with only minor adjustments to interest rates.233 Dr Rajan also noted that the assumptions feeding such models go unexplained and yet are unquestioned. He said: “ everybody believes [your policy statement] and, therefore, you can influence expectations whichever way you want.”234
129.Edward Chancellor told us: “If everyone is using the same model, it does not matter where they come from; there is no underlying diversity of opinion. My view is that we live in an extremely complex world and a highly financialised economy, and theoretical economist models are not particularly good at describing what is going on.”235
130.The Bank’s Independent Evaluation Office (IEO) conducted an inquiry into the Bank’s forecasting capabilities in November 2015.236 It found a number of areas where the Bank’s core forecasts had performed well. However, it recommended investigation into discrepancies in the accuracy of the Bank’s two-year projections relative to one year and it recommended a review of the Bank’s forecasts for unemployment.237 In June 2023, the Bank announced another review of its forecasting capabilities. Unlike the last, this review will be externally led, albeit supported by the IEO (see Chapter 5).238 It subsequently confirmed that the review would be led by Dr Ben Bernanke, former Chairman of the US Federal Reserve.239
131.When asked about the Bank’s use of models, Andrew Bailey said:
“We do not have a single model. We have … a suite of models that we can put to work. We develop new ones as time goes by … The job of the [monetary policy] committee is to … introduce its own judgments and form those into changes to the forecast that seem appropriate, given the economic situation we are in. The idea that there is a sausage machine that you stick things into at one end and a forecast pops out the other end—it is really not like that at all.”240
132.Mr Bailey added that a problem is that the models the Bank has currently tend to be “highly linear and highly symmetric”. He noted that “if you were to leave the [model] to run on its own and take it as it was, the forecast would deliver a very rapid fall in inflation, back to and well below target, driven by this linear symmetry condition that it is in there. We have aimed off that”.241
133.When asked whether a fresh investigation into the Bank’s forecasting capabilities by the IEO could increase the sense of independent analysis and increase confidence in the Bank, Andrew Griffith MP said: “I think we arrive at that conversation with a slightly different starting point as to whether there are any deficiencies in the status quo. I try to keep an open mind and seek to see what we can learn. I would not go so far as to think there is a problem that needs to be addressed.”242
134.In 2021 the Bank of England, like many central banks, incorrectly forecast that above-target inflation would be “transitory”. This was in part thanks to a lack of challenge as regards its modelling and forecasts. We therefore welcome the Bank’s new externally-led review into its forecasting capabilities. This review should seek to explain the value of models that seldom predict anything other than a return to the two per cent target over their forecast horizon. We hope the review also considers whether appointments, both of officials of the Bank and members of the MPC, are creating sufficient diversity of thought.
Appointments
135.The issue of diversity of thought, and the overall matter of Bank independence, was linked by several witnesses to the process by which individuals are appointed to the Bank overall, and to the MPC specifically. Four members of the MPC are external appointees, while the remaining five comprise the Governor, three Deputy Governors and the Chief Economist of the Bank.243
136.The Governor and Deputy Governors are Crown Appointments, made by the Monarch on the advice of the Prime Minister and Chancellor. For the four external members of the MPC, they are appointed directly by the Chancellor.244 Such appointments have been advertised publicly, with an Advisory Assessment Panel chosen,245 and hosted by HM Treasury, to assist the Chancellor with the decision-making.246 The Chief Economist is appointed to the MPC by the Bank’s Court of Directors, with the Governor required to consult the Chancellor on the appointment.247 The House of Commons Treasury Committee also holds hearings on the appointment of each new policy committee member (see Chapter 5).248
137.Witnesses expressed concern about the role of HM Treasury when appointing to such positions within the Bank.249 Stephen D King said, “the Treasury has an awful lot of influence in the appointments process in a way that has created an MPC that is dominated by people who were, at some point, at the Treasury.” He added: “All four deputy governors have spent time at the Treasury, quite extended periods of time in some cases. So although one thinks of the Bank of England as being independent, it is independent but with the Treasury still casting a shadow over it”.250 According to Roger Bootle, this was “not a very good thing from the point of view of avoiding groupthink or even avoiding criticisms of full independence.”251 Professor Congdon told us that “the real problem here is that the Treasury is too powerful… [it] dominates and controls the appointments process. I think the deputy governors at present have all worked in the Treasury ... In my view, there is a bit of a racket going on. Essentially, friends are appointing each other.”252
138.Lord Macpherson of Earl’s Court, former Permanent Secretary to HM Treasury, considered it unsurprising that HM Treasury “ends up populating some of the Bank.” He argued that the two big economic policy institutions in the country are the Bank of England and HM Treasury. He added: “You only have to look at France. Jean-Claude Trichet was head of the French Treasury. He went on to run the French Central Bank and then the European Central Bank.”253
139.Sir John Parker, former Chair of the Court of Directors at the Bank, stressed that for the appointment of Deputy Governors, for example, “there should be a proper process that is well defined. What are the criteria? What is the process by which we will go about interviewing, and what are the process by which we will make the final interview and appointments?”254 The Institute of International Monetary Research at the University of Buckingham said that the “task of making appointments to the MPC should be taken away from the Treasury and transferred to a newly-appointed committee with the best interests of the MPC at heart.”255
140.David Roberts, Chair of the Court of Directors, told us: “the critical factor here is the right people, core skills and diversity of background.” He concluded: “Would I worry if people had the same background and experience? Yes, I would … but I do not rule in or rule out the very fact that they might have spent some time in their career in the Treasury as being either a big advantage or a big disadvantage.”256
141.Mr Roberts highlighted certain practicalities to consider when making appointments to the MPC, including conflicts of interest, ethics and the availability of candidates. He said the Bank has to “work hard” to find candidates and that he was interested in diversity of thought and of experience. When asked whether HM Treasury should continue to lead on appointments, he told us:
“[The] Treasury has an accountability and a responsibility. The critical thing is that … we are clear about what we want, on both the hard skills and the interpersonal or interaction skills … If it is not going to be done within the Bank … the other model is something like the Judicial Appointments Commission. That is quite different, because [the role of the judiciary] is to hold the Government of the day and future days to account. That requires you to be outside of government. We are part of the executive line, which is why the Chancellor and the Prime Minister should do that.”257
142.On Deputy Governors of the Bank having a Treasury background, Andrew Griffith MP considered that “one is fishing in a fairly narrow gene pool.” He noted “the likelihood is that people arriving in those positions will have had a lifetime of service in the Bank, possibly some time in the Treasury.” He said that rather than looking at the executive for difference, focus should be placed on the external members of the MPC and [the Court of Directors] itself.258
143.Members of the Bank’s policy committees make decisions which have an immense impact on the UK economy. However, being led by HM Treasury, the process for appointing members to the Monetary Policy Committee has contributed to perceptions of both bias and a lack of diversity of thought. It is notable that three of the four current Deputy Governors have a Treasury background. While they are undoubtedly able, this does not strengthen the perception of independence. HM Treasury and the Bank’s Court of Directors should commission an independent review to address this: that review should look at how other public appointments are made, such as to the judiciary; consider best practice in other central banks; and propose measures to ensure the appointments process is transparent.
Role of the Court of Directors
144.The Court of Directors (Court) has an oversight role in the Bank. It is a unitary board, responsible for managing the “affairs of the Bank as a corporation” while the policy committees retain responsibility for monetary policy, financial stability and prudential regulation. It provides a source of challenge through its approval of the Bank’s risk tolerance framework and its frameworks for monitoring and managing risk, including those related to the Bank’s balance sheet. It also reviews the Bank’s performance in relation to its objectives,259 the Bank’s operational capability, and its skills and culture (see also Chapter 5).260
145.The Court comprises five executive members: the Governor and the four Deputy Governors. The Chief Operating Officer of the Bank also attends each meeting of the Court. There are currently eight non-executive members, including the Chair of the Court, with a further non-executive member due to be appointed. The non-executives are considered by the Court to be a “vital source of independent challenge” and they help to ensure that “the Bank maintains its operational independence at all times.” We were told that the non-executive members of the Court have the right to meet separately and commission reviews independently.261
146.Some witnesses suggested that the Court had limited effect. Sir Howard Davies told us that the Court “looks like a hygiene body” and is therefore “not useless but it does not do very much”.262 Sir Paul Tucker argued that “all the Bank’s powers are best viewed as vested in the Governor and company. In other words, that is the Court of Directors, which reserves a few things for itself such as signing off on budgets but otherwise delegates everything to the person of the Governor.”263
Reform of the Court
147.Following the Financial Services Act 2012, a sub-committee of the Court, the Oversight Committee, was established.264 The Oversight Committee was made up exclusively of non-executive members. In 2014, the Bank called for a series of reforms to its governance, which included recommending a simpler governance structure by establishing a unitary board, believing that it “could be more effective both in managing the Bank and in delivering a more convincing framework for accountability.”265 Accepting the Bank’s recommendation, in 2015 the Government introduced the Bank of England and Financial Services Bill to abolish the Oversight Committee and to turn the Court back into a unitary board. During the passage of the Bill through Parliament, concerns were raised that the abolition of the Oversight Committee might limit the opportunity for non-executive members of the Court to hold the Bank’s executives to account and challenge executives’ decisions.266 In the end, the Oversight Committee was abolished by the Bank of England and Financial Services Act 2016.267
148.Lord Macpherson said that as a unitary board, the Court “works relatively well, especially now that it is a smaller board” and that a “critical role of any board is to ensure that the institution learns the lessons of both successes and failures”. Despite this, he was a “fan of the oversight committee as a way of very mildly, just occasionally, challenging the executive to understand why [things had] turned out as they had”.268
149.On the Court’s current composition, some witnesses expressed concern about the number of executive members, which include the Governor and the four Deputy Governors. Roger Bootle said: “There is a problem with the Court … in that it is so heavily stuffed with executives of the Bank that it is almost marking its own homework”.269 Sir Howard Davies noted that in other countries “there is a governor and a first deputy, and the others are not on the overall body.”270
150.David Roberts told us that “In terms of both statutory responsibilities and the remit [that the Court fulfils], our ability to influence and execute change is high.” He emphasised that the Court is responsible for the operational effectiveness of the Bank of England, “so everything up to but not including the policy decisions.”271 He also said that in his view a corporate board was a unitary board: “Decisions and discussions are enhanced by having management there, as long as the non-execs have the capacity, capability, information and the climate of that board to be able to challenge”. He added that it was “wrong to characterise the operation of the board as being executive-led and executive-heavy”:
“The way the Court operates is driven extensively by the non-execs, clearly, in consultation with the Governor, because there are things he wants to talk about and things we want to talk about. It is always valuable to have executives around the table. There are occasions I have seen where, if you have only two, it can become very dominated.”272
151.Andrew Griffith MP told us that in his “limited time experience of the Court” it was working well. He said: “I have seen different views, and it is right that there are different views”.273
152.Within the boundaries of its terms of reference, the Bank’s Court of Directors plays an important role in terms of holding the Bank’s Executives to account and providing internal challenge. Its ability to commission performance reviews of the Bank’s policy committees provides a key means of doing so. However, we note that the Bank of England and Financial Services Act 2016 not only abolished the Oversight Committee but also reduced the number of non-executives on the Court. While there were mixed views from witnesses on the Court’s current composition of non-executive and executive members, the Court must be able to provide a source of effective challenge within the Bank. The Chair of the Court should consider how to enhance the role of the non-executive members so they are as effective as possible.
188 Written evidence from Trade Union Congress (IBE0018), see also Gresham college, ‘Gresham’s Law in Economics: Background to the Crisis’ (March 2014): https://www.gresham.ac.uk/watch-now/greshams-law-economics-background-crisis [accessed 25 September 2023]
194 Bank of England, ‘Bank of England Monetary Policy Report’ (August 2021): https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2021/august/monetary-policy-report-august-2021.pdf [accessed 26 September 2023]
196 Bank of England, ‘Bank of England Monetary Policy Report’ (August 2021): https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2021/august/monetary-policy-report-august-2021.pdf [accessed 26 September 2023]
197 Bank of England, ‘Monetary Policy Committee voting history—Bank Rate’: https://publications.parliament.uk/pa/ld5802/ldselect/ldeconaf/131/13102.htm [accessed 26 September 2023]
198 Office for National Statistics, ‘Consumer price inflation, UK: October 2023’ (November 2023) https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/latest [accessed 17 November 2023]
199 Bank of England, ‘Monetary Policy Report’ (February 2021): https://www.bankofengland.co.uk/monetary-policy-report/2021/february-2021 [accessed 26 September 2023], Office for National Statistics, ‘Consumer price inflation, historical estimates and recent trends UK: 1950 to 2022’ (May 2022): https://www.ons.gov.uk/economy/inflationandpriceindices/articles/consumerpriceinflationhistoricalestimatesandrecenttrendsuk/1950to2022 [accessed 30 October 2023]
200 Bank of England, ‘A Money and lending’: https://www.bankofengland.co.uk/boeapps/database/index.asp?first=yes&SectionRequired=A&HideNums=-1&ExtraInfo=false&Travel=NIxST [accessed 30 October 2023]
202 The broad definition of M4 equals notes and coins in circulation (M0, or the monetary base) plus holdings in bank and building society accounts. For a more detailed explanation see Bank of England, ‘Further details about M4 data’: https://www.bankofengland.co.uk/statistics/details/further-details-about-m4-data [accessed 26 September 2023]. See also Forbes, ‘The “Long And Variable Lag”—A Dangerous Monetary Policy Myth’ (July 2023): https://www.forbes.com/sites/georgecalhoun/2023/07/08/the-long-and-variable-lag--a-dangerous-monetary-policy-myth/ [accessed 26 September 2023].
205 ‘Groupthink at the Bank of England is the real driver of inflation’, The Telegraph (April 2023): https://www.telegraph.co.uk/business/2023/04/23/groupthink-bank-of-england-real-driver-inflation/ [accessed 26 September 2023]
210 Ibid. In the 1990s, Japan experienced a period of economic stagnation which became known as the Lost Decade, see International Monetary Fund, ‘Japan’s Lost Decade’ (February 2003): https://www.imf.org/external/pubs/nft/2003/japan/index.htm [accessed 17 October 2023].
215 M4ex is M4 excluding the deposits of intermediate OFCs (other financial corporations) which are seen as similar in nature to monetary financial institutions; M4lex is the net flow of sterling lending to private sector companies and households.
216 Letter from the Governor of the Bank of England to Lord Bridges of Headley Chair of the Economic Affairs Committee (6 July 2023): https://committees.parliament.uk/publications/41079/documents/200046/default/. For a detailed discussion of this issue, see Bank of England, ‘Monetary policy: prices versus quantities—speech by Ben Broadbent’ (April 2023): https://www.bankofengland.co.uk/speech/2023/april/ben-broadbent-speech-hosted-by-national-institute-of-economic-and-social-research.
218 Ibid.
222 This includes the ‘dynamic stochastic general equilibrium’ (DSGE) models. These models generally assume that inflation will return to target, that the supply-side of the economy remains constant, that you can ignore structural financial developments, and that expectations are either ‘rational’, or at least ‘model consistent’. See London School of Economics, Real Business Cycle Models: https://personal.lse.ac.uk/vernazza/_private/RBC%20Models.pdf [accessed 26 September 2023].
223 See Table 1, Hoover Institution, Stanford University, The Fed: Bad Forecasts and Misguided Monetary Policy (May 2023): https://www.hoover.org/sites/default/files/2023-05/Hoover%20Monetary%20Policy%20Conference%20May%2012%202023%202-1.pdf [accessed 17 October 2023], Pound Sterling, ‘How Many More ECB Interest Rate Hikes are Likely?’ (July 2022): https://www.poundsterlinglive.com/economics/17290-how-many-more-ecb-interest-rate-hikes-are-likely [accessed 17 October 2023].
225 ‘‘Living in a fantasy’: euro’s founding father rebukes ECB over inflation response’ Financial Times (12 April 2022): https://www.ft.com/content/145b6795-2d21-48c6-984b-4b05d121ba16
226 See footnote 222
228 Ibid.
230 Bank of England, ‘Review of the Monetary Policy Committee’s forecasting capability—Report by David Stockton’ (October 2012): https://www.bankofengland.co.uk/-/media/boe/files/news/2012/november/the-mpcs-forecasting-capability.pdf [accessed 2 October 2023]
232 Ibid.
234 Ibid.
236 Bank of England, ‘Evaluating forecast performance November 2015’ (November 2015): https://www.bankofengland.co.uk/independent-evaluation-office/forecasting-evaluation-november-2015 [accessed 17 October 2023]
237 Ibid.
238 Letter from David Roberts, Chair of Court to Harriet Baldwin, Chair of the Treasury Committee 14 June 2023: https://committees.parliament.uk/publications/40407/documents/197180/default/
239 Bank of England, ‘Ben Bernanke to lead review into forecasting at Bank of England’ (July 2023): https://www.bankofengland.co.uk/news/2023/july/ben-bernanke-to-lead-review-into-forecasting-at-bank-of-england [accessed 2 October 2023]
243 Bank of England, ‘Monetary Policy Committee’ (November 2023): https://www.bankofengland.co.uk/about/people/monetary-policy-committee [accessed 6 November 2023]. By way of comparison, the FPC normally has thirteen members: six of them are Bank of England staff (and include the Governor, four Deputy Governors and the Executive Director for Financial Stability Strategy and Risk); the remaining seven members comprise five external members, the Chief Executive of the Financial Conduct Authority and one non-voting member from HM Treasury.
244 Bank of England, ‘Monetary Policy Committee’ (November 2023): https://www.bankofengland.co.uk/about/people/monetary-policy-committee [accessed 6 November 2023]
245 According to the Governance Code of Public Appointments, the role of the Panel is “to assist Ministers in making Public Appointments. The Panel’s role is not to choose candidates for the appointment in question but to provide Ministers the candidates who are capable of undertaking the appointment—from which Ministers can make their selection for appointment.” Ministers should consider the advice of the Advisory Assessment Panels but are not bound by their views. The Commissioner for Public Appointments, ‘Governance Code on Public Appointments’ (December 2016): https://publicappointmentscommissioner.independent.gov.uk/publications/accessible-formats/governance-code-on-public-appointments/ [accessed 30 October 2023]
246 See HM Government, ‘Deputy Governor for Monetary Policy at the Bank of England’ (November 2023): https://apply-for-public-appointment.service.gov.uk/roles/7794 [accessed 30 October 2023] and HM Government, ‘Deputy Governor for Monetary Policy at the Bank of England’ (November 2023): https://apply-for-public-appointment.service.gov.uk/roles/7794 [accessed 30 October 2023]
247 Bank of England, ‘Huw Pill appointed Chief Economist of the Bank of England’ (September 2021): https://www.bankofengland.co.uk/news/2021/september/huw-pill-appointed-chief-economist-of-the-boe [accessed 30 October 2023]
250 Q 249 (Stephen D King). This was the case when Sir Jon Cunliffe was Deputy Governor for Financial Stability. His term ended on 31 October 2023, and he has since been replaced by Sarah Breeden.
255 Written evidence from the Institute of International Monetary Research at University of Buckingham (IBE0008)
259 Bank of England, ‘Governance of the Bank of England including Matters Reserved to Court’ (July 2022): https://www.bankofengland.co.uk/about/people/court-of-directors/governance-of-the-bank-of-england-including-matters-reserved-to-court [accessed 2 November 2023]
261 Ibid.
264 The Oversight Committee was introduced by the Financial Services Act 2012
265 Bank of England, ‘Transparency And Accountability At The Bank of England’ (December 2014): https://www.bankofengland.co.uk/-/media/boe/files/news/2014/december/transparency-and-the-boes-mpc-response [accessed 2 October 2023]
266 House of Commons Library, The Bank of England and Financial Services Bill (HL) (Lord stages), Number 7338 (January 2016)