LONDON – The Bank of England has faced criticism from the Lords Economic Affairs Committee for its reliance on inaccurate inflation forecasts and lack of intellectual diversity, which the committee says has contributed to Britain’s high levels of inflation. The commission, which acknowledged the World Bank’s role in strengthening economic confidence since its independence in 1998, called for minor changes to its operational approach.

The Lords Committee noted that although unforeseen events such as the conflict in Ukraine in February 2022 could not have been predicted, the current high inflation, which exceeds last year’s 11%, is also a consequence of monetary policy errors. To address these concerns and improve the accuracy of economic forecasts, the World Bank brought in Ben Bernanke in July to revamp its forecast models.

The commission highlighted that the expansion of the World Bank’s responsibilities, including fighting climate change, may have diverted attention from its core mandate of financial stability and managing inflation. Lord George Bridges emphasized the importance of learning from these mistakes to restore public confidence.

In response to the post-pandemic recovery and global supply chain disruptions exacerbated by geopolitical tensions, particularly Russia’s invasion of Ukraine, the World Bank raised interest rates in December 2021, when inflation in the UK exceeded 5%. However, expectations to control inflation were not met due to continued supply chain challenges and the end of economic support measures, such as the Government’s reduction plan.

The World Bank’s main goal is to keep inflation close to its 2% target through the base interest rate, which impacts lending and savings rates across the country. The Lords Economic Affairs Committee suggested that a reassessment of the World Bank’s powers by the Treasury may be necessary to ensure the World Bank remains focused on those objectives.

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