King's College London

At the Bank of England Watchers Conference today, Ms Lombardelli shared her views on the outlook for inflation and set out changes that she described as the largest reform to the Bank’s monetary policy processes since it gained operational independence in 1997.

On inflation, she noted that there are some signs of wage disinflation slowing: “firms expect wage growth to decline further, but their one-year ahead expectations seem to have stabilised in recent months.” She added that the Bank of England’s pay sources suggested that pay awards would moderate at somewhere between 2%-4%, but that wage growth needed to be at around 3% to be consistent with inflation at target.

Ms Lombardelli also gave an overview of changes the Bank of England is making in response to the review of its forecasting methods conducted by former Chair of the US Federal Reserve, Ben Bernanke. She said that the Bank would cover all, but not be limited to, the areas considered in Dr Bernanke’s review, encompassing:

• Capabilities, including the Bank’s data infrastructure and modelling framework.
• The inputs into policymaking, including the role of the forecast and scenarios, and their underlying assumptions.
• The way MPC discussions are structured.
• How those inputs are used to inform the MPC’s policy decision.
• How the Bank communicates the policy decision, outlook and risks to both financial markets and the general public.

She explained that in the light of the scale and nature of supply shocks that had driven UK inflation, there was a particular need for the Bank to consider how it communicates uncertainty. She emphasised that the Bank will consider and publish different scenarios for the economy on an ongoing basis in order to make monetary policy more robust to a wider range of circumstances.

However, she said she would not provide a complete and definitive blueprint for the Bank’s future ways of working, emphasising that these are complex reforms: