Lawmakers Urge Bank of England to Place Greater Emphasis on Money Supply

Lawmakers suggest the Bank of England (BoE) should pay closer attention to money supply and embrace a broader spectrum of perspectives among its rate-setting members to more effectively anticipate inflation spikes.

On Monday, the House of Lords Economic Affairs Committee, including ex-BoE Governor Mervyn King, cautioned that the BoE's broad mandate from the government has overextended its responsibilities, with climate change being a notable addition.

Committee chair George Bridges emphasized the need for the bank to also consider supporting government objectives, such as housing and energy policy. This advice follows an investigation started in March after inflation hit a 41-year peak, exacerbated by unforeseen post-pandemic price rises and Russia's invasion of Ukraine.

The committee criticized the uniformity in central bank thinking, highlighting the BoE's reliance on flawed forecast models and consensus regarding temporary inflation in recent years. The report urges the BoE to include money supply analysis in its quarterly forecasts—a once-prevailing approach for inflation control.

Responding, the BoE assured a thorough review of the recommendations, coinciding with its own forecast evaluation led by ex-Fed Chair Ben Bernanke. Finance Minister Jeremy Hunt also recently de-emphasized climate change in the BoE's mandate.

Moreover, the Lords committee advocates for more parliamentary debates on these mandates and a detailed five-year review of the BoE’s performance to enhance democratic accountability. The finance ministry responded, noting that the Bank already undergoes regular parliamentary scrutiny.