How the Bank of England and the OBR got it wrong on inflation 


How the Bank of England and Office for Budget Responsibility got it so wrong on inflation

The rapid rise in the cost of living has caught some of Britain’s most important economic forecasters off-guard.

In October, the Government’s Budget watchdog predicted inflation would peak at 4.4 per cent. 

In November, the Bank of England was expecting a peak of 5 per cent.

In October, the Government¿s Budget watchdog predicted inflation would peak at 4.4%. Now it has conceded inflation will likely hit 8.7%

In October, the Government’s Budget watchdog predicted inflation would peak at 4.4%. Now it has conceded inflation will likely hit 8.7%

Now the Office for Budget Responsibility has conceded inflation will likely hit 8.7 per cent in the final quarter of 2022. The Bank thinks it could top 10 per cent.

The two influential City institutions could hardly have foreseen that Vladimir Putin would launch a war, affecting prices of goods from food to electronics.

But inflation was heating up faster than official forecasts suggested. Bank Governor Andrew Bailey insisted any rise in the cost of living was ‘transitory’.

In May 2021, Threadneedle Street said inflation may edge above the target of 2 per cent by the end of the year, but this would only be temporary.

Fewer than 12 months on, it is at a 30-year high of 6.2 per cent. 

Andy Haldane, the Bank’s former chief economist, seemed to be one of the few alive to the risks.

In 2021, he worried that prices could soar and said efforts to tame inflation would be like ‘trying to catch a tiger by its tail’.

His colleagues may have come round to his way of thinking, as they have hiked interest rates three times since December.

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