Wednesday 7 August 2013 11:00 pm

Doubts raised over new Bank inflation test

ONE OF the Bank of England’s new controls on price stability was thrown into question last night, due to the Bank’s rose-tinted forecasting record in recent years.

The Bank said yesterday it could raise rates if it forecasts inflation above 2.5 per cent 18 months into the future – yet it has not predicted such a level since at least 2004, despite inflation soaring to more than double that rate two years ago.

The Bank confirmed that no central projection for inflation has been at or above 2.5 per cent for the period 18-24 months ahead in recent years, even as prices jumped.

A spokesperson commented: “In recent forecasts, those knockouts have not been reached”.

Data goes back nine years, to when the Bank switched to the consumer price index (CPI).

Even when CPI reached 5.2 per cent in October 2011, the Bank’s central projection in November predicted that it would return to well below two per cent in just over a year – an outcome that has yet to materialise.

Governor Mark Carney insisted the system of so-called knockouts provided a “robust framework” for ensuring price stability.

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