Economics Weekly by Lloyds TSB

Each year, in the August Inflation Report, the Bank of England reviews the accuracy of the inflation forecasts made by the UK Monetary Policy Committee (MPC).

Assessing the MPC’s forecasting record

Each year, in the August Inflation Report, the Bank of England reviews the accuracy of the inflation forecasts made by the UK Monetary Policy Committee (MPC). The reports have become of increased interest, as there has been a suspicion that the policy committee has been unduly conservative about the inflation risks facing the UK economy. If true, this would suggest that over the past decade monetary policy may have been tighter than it should have been given the MPC’s strict inflation remit. By extension, GDP growth may have been commensurately, but unnecessarily, weaker. However, some also argue that the MPC has under-estimated inflation. If so, there is a risk that policy has been too loose, potentially leading to higher inflation.

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