How the Bank of England could have avoided mis-forecasting UK inflation during 2021–24

Abstract:

The Bernanke Review was triggered by the Bank of England mis-forecasting UK inflation as it rose rapidly from 2021, peaking at 11% in 2022. Unpredictable shocks partly explain the failures, but slow reactions also mattered. This column argues that monitoring forecasts in real time would have revealed large same-sign one-step-ahead errors, signalling a shift. Rapidly replacing intercept corrections to offset such forecast errors by broken trends would have accurately forecasted the UK’s inflation.