BoE’s Bailey says ‘big lessons’ to be learned from inflation surge

Bank of England Governor Andrew Bailey said on Tuesday the central bank had “very big lessons to learn”, with inflation still in double digits and food prices rising at the fastest rate since the 1970s.

“I think there are very big lessons about how we operate monetary policy in the face of very big shocks,” Bailey told lawmakers in a question-and-answer session dominated by questions about the BoE’s failure to forecast the scale of inflation’s jump.

Harriet Baldwin, chair of parliament’s Treasury Committee, told Bailey that the central bank had been too slow to pick up on the warnings of food producers that costs were rising sharply – something now evident in inflation data.

“Something has really gone wrong with your modelling and your network of agents which is meant to give you this edge in terms of information,” Baldwin said.

Bailey said the BoE’s market contacts were told in February that food inflation had likely peaked, which had turned out not to be true, with weather events in other parts of the world affecting crops like sugar.

He said food producers may also have locked in higher costs than the BoE had anticipated, something that he said should have been picked up by the central bank.

Earlier on Tuesday, the Office for National Statistics said British food inflation – at 19.1% in March – was the second-highest among Group of Seven countries, behind only Germany.