Bank of England Admits Inflation Forecasts Were Wrong for Years

Summary: The Bank of England has formally admitted its inflation forecasts were repeatedly wrong for years, underestimating both price rises and wage growth. The confession raises fresh questions about accountability at the top of the central bank and why households were left exposed as living costs surged.

What has the Bank of England admitted?

The Bank of England has published its first ever review of its own economic forecasting and the verdict is blunt. Since 2022, its projections for inflation and wage growth were consistently too low.

According to the report, inflation ran almost two percentage points above forecasts on average from mid-2021 onwards. Wage growth missed the mark by an even wider margin, coming in nearly three percentage points higher than expected.

Why were the forecasts so wrong?

Officials point to weaknesses in how the labour market was understood, describing it as a “relative weak spot” in the Bank’s modelling. In plain terms, policymakers did not fully grasp how tight the jobs market had become.

The Bank also criticised data quality from the Office for National Statistics, warning that frequent revisions meant staff lacked accurate real-time information when key decisions were being made.

What does this say about leadership?

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The review will sharpen scrutiny of Governor Andrew Bailey, who has already acknowledged failings. In 2023, he publicly accepted the institution had made serious errors.

“We have very big lessons to learn,” Bailey said at the time.

Critics argue those lessons came too late for families hit by soaring bills, higher mortgage rates, and shrinking disposable incomes.

Why was the review carried out at all?

The evaluation was commissioned after a separate assessment by Ben Bernanke, the former US Federal Reserve chairman. His 2024 review identified “serious deficiencies” in the Bank’s forecasting framework.

That intervention was highly unusual and reflected the scale of concern about how Threadneedle Street handled the inflation shock following Russia’s invasion of Ukraine.

What does this mean for the UK now?

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The Bank also warned that Britain may be more exposed to global market volatility than previously thought. Pension funds have reduced purchases of long-term government debt, pushing up borrowing costs.

With national debt approaching £3 trillion, even small rises in interest rates have major consequences for public finances. For households, the lesson is starker. When the central bank gets it wrong, ordinary people pay the price first.