The Bank of England (BoE) faces a major overhaul of its internal culture, governance and appointments practices following a critical report by the House of Lords.

A key criticism of the bank – and other central banks in Europe – is that they acted slowly to tackle high inflation since 2021. Those have been brought about by the COVID-19 pandemic and by Russia’s invasion of Ukraine. “Nonetheless, the persistence of above-target inflation over this period also reflects errors in the conduct of monetary policy, including an over-reliance on inadequate forecasting models,” said the report, Making an independent Bank of England work better. 

Lack of diversity

The report pointed to deficiencies in BOE’s internal culture. “We received evidence that errors in monetary policy reflected a lack of diversity of view in the Bank of England and wider central bank community,” it said. “To address this, the Bank must do more to foster a diversity of views and strengthen a culture that encourages challenge. Areas that need attention include governance, hiring practices and appointments, especially to the Monetary Policy Committee.”

The report also said that while maintaining independence was important, that BoE’s remit had grown too wide and that there was inadequate communication between it and the Treasury. As a result, it suggested trimming the bank’s role and improving reporting lines. In addition, the committee also recommended that what it called a “democratic deficit” had arisen in which the decisions of a few unelected officials affected the entire UK economy with insufficient scrutiny. Parliament should create a new five-year rolling review of the body, it said.

Deprioritising the environment

Chancellor Jeremy Hunt removed climate change from a list the BoEs’ key priorities recently, according to the Financial Times. The paper noted that climate change, energy security, international competitiveness and competition and innovation that had been on the list in 2022, this year was replaced by growth and competitiveness, competition and innovation, homeownership and boosting productive finance in this year’s letter.