BOE staff use ‘out-of-date’ software

The model that the Bank of England uses to make economic forecasts has “significant shortcomings”, a review commissioned by the Bank has found as it recommended dedicating more resources to the job.

A report by former US Federal Reserve chair Ben Bernanke found that Bank staff wereusing“out-of-date”software which had not been properly maintained.

It found that staff were performing some functions manually which “ideally would be executed automatically”. The review was called last year after Bank forecasts were repeatedly wide of the mark in a period of economic turbulence.

At a time when the economy is fluctuating it is always harder to predict what will happen next, but the Bank broughtindrbernankeafter receiving public criticism. But the review found in part that while the Bank’s forecasts had been off at times, it had done better than some other central banks.

In the critical period between the second quarter of 2021 and the third quarter of 2023, the Bank of England did better than the European Central Bank of Sweden’s Riksbank in forecasting inflation. In the same period it did worse than the central banks of Canada, Norway and New Zealand. The US Fed does not publish comparable forecasts.

Inthesameperiodthebank wasthesecond-worstatforecastinggrossdomesticproduct. At one point, it forecast the longest recession in decades, which did not happen.

The former Fed boss made a series of recommendations,includingthatsoftware shouldbeupdatedandmodernised “with high priority”.

The new software should ensure data input “is automated to the greatest extent possible”, especially for “routine operations”. There should be a “significant increase in dedicated staff time” in maintaining and developing the models the Bank uses. In the longer term the Bank should consider replacing the current COMPASS system.