Bank of England Criticized for Inflation Forecasting Failures and Over-Aggressive Rate Hikes

The Bank of England has been criticized for failing to predict the surge in inflation over the past 2 years. The author analyzes the BoE's forecasting models and finds they under-predicted inflation in 2021 and over-predicted peak inflation in late 2022.
The author compares the BoE's forecasts to other models like a quantile model, a VAR model incorporating global factors, and a simple history-based model. The VAR model was most accurate for 2021-2023.
The BoE's over-prediction of peak inflation in 2022 may have led it to raise interest rates too aggressively, potentially tipping the UK into recession.
The analysis shows the BoE has struggled to understand the impact of quantitative easing on inflation since 2009.
The author suggests the BoE should be more transparent about its forecasting models and hold a "prediction tournament" to benchmark its performance against other models.

The Bank of England has been criticized for failing to predict the surge in inflation over the past 2 years. The author analyzes the BoE's forecasting models and finds they under-predicted inflation in 2021 and over-predicted peak inflation in late 2022.
The author compares the BoE's forecasts to other models like a quantile model, a VAR model incorporating global factors, and a simple history-based model. The VAR model was most accurate for 2021-2023.
The BoE's over-prediction of peak inflation in 2022 may have led it to raise interest rates too aggressively, potentially tipping the UK into recession.
The analysis shows the BoE has struggled to understand the impact of quantitative easing on inflation since 2009.
The author suggests the BoE should be more transparent about its forecasting models and hold a "prediction tournament" to benchmark its performance against other models.