A “shake-up” is coming to the Bank of England following Ben Bernanke’s review, incoming rate-setter Clare Lombardelli said today.
Lombardelli, who will take up her role on the Monetary Policy Committee (MPC) in July, will be responsible for implementing the Bank’s response to the Bernanke review.
The Bernanke review was published last week and found “significant shortcomings” with the Bank’s modelling techniques.
The review made a number of suggestions for improving policy-making at the Bank relating both to its internal operations and its policy communications.
Lombardelli confirmed to politicians that the review would lead to major changes. “Can I assure you there’s going to be a shake-up in response to Bernanke? Absolutely,” she told MPs on the Treasury Committee.
“This is a fantastic opportunity,” Lombardelli said. “One of the reasons I’m so pleased to take on this job now is because of the scale of the opportunity here”.
I can assure you this is going to look and feel very different in future
Clare Lombardelli
One reform Bernanke did not suggest in his review was that the Bank move towards a forecast based on the MPC’s own collective judgement about the likely path of interest rates, something which many market participants argue would provide extra clarity.
Lombardelli suggested this would be a subject for discussion in her response to the review. “I can see advantages around this,” she said. “It allows for consistency and provides some clarity, but there’s also challenges to doing it as well, around what it does for expectations”.
“If you look around the world, some central banks do this and some don’t…Its not obvious there’s a best way of doing this,” Lombardelli said.
“Its quite a complicated issue and it needs quite careful thought,” she concluded. Bernanke himself said a move in this direction would be “highly consequential”.
Lombardelli is currently chief economist at the Organisation for Economic Co-operation and Development (OECD) and was previously chief economic adviser to the Treasury.
August will be the first meeting in which Lombardelli is able to vote on interest rates. She said lower rates were “the direction of travel” but did not give any indication about her preferred timing for cutting rates.