In the review’s terms of reference, Bernanke recognised the UK has had a unique inflationary experience due to a “complex constellation of shocks”, such as significant supply chain issues, which have fuelled a sharp rise in inflation.
He argued the Bank of England’s inflation targeting was well established to manage risks prior to the energy crisis, the invasion of Ukraine and Covid.
However, the more unexpected shocks of the recent years have revealed a higher level of uncertainty around their impact on the economy.
As a result, the BoE commissioned a review into its forecasting and related processes during periods of “significant uncertainty”.
Bernanke said the purpose of the review is to “develop and strengthen the BoE’s processes in support of the monetary policy committee’s forward-looking approach to the formulation of monetary policy, especially in times of high uncertainty”.
He added the focus will be on the future rather than an “ex-post review” of policy decisions, and it will be informed by “taking lessons from past experiences and from the experiences of other central banks”.
Bernanke admitted the review could lead to changes to several areas of the way the central bank and the MPC work.