Talk to UK newspaper editors and they will tell you that, by and large, they are happy with the system of self-regulation regarding complaints. Anyone who thinks it provides an easy ride, they will say, does not understand that no one likes their peers marking their homework.
But this is precisely the point, say regulatory campaigners: it’s the press marking their own work, and the outcome, while sometimes critical, usually is not hard-hitting enough.
I was reminded of this continuing debate by publication of Ben Bernanke’s review of the Bank of England’s performance over the past two years.
Mr Bernanke, one of the most highly respected of recent central bankers, was asked by the Bank to examine its methods and practices. The former US Federal Reserve chairman took his brief seriously, spending more than seven months and conducting more than 60 face-to-face interviews with Bank of England staff and market participants and sitting in on its Monetary Policy Committee’s November 2023 rate-setting round.
Doubtless all that was most uncomfortable for governor Andrew Bailey and his team. Mr Bernanke’s 80-page report does not hold back, dishing out criticism and making 12 recommendations for change. Except it does pull its punches in one respect: Mr Bernanke does not say what he thinks of Mr Bailey and his MPC colleagues. He does not comment on the way they work and whether they should reform their all-important forecasts for inflation and the economy.
That, you feel, was a step too far. But this was a Bank and its hierarchy, let us not forget, that failed to predict the energy price spike following Russia’s invasion of Ukraine, that didn’t foretell the impact of the pandemic on global trade and supply chains, assumed that workers would pick up from where they left off once the outbreak had dissipated and the lockdowns ended and didn’t realise lifestyle patterns had altered, possibly forever.
Human behaviour is never a Bank strength: it also did not call how price inflation would lead to salary inflation, that rather than stomach high prices, workers would immediately seek more money.
That’s quite a roll-call. Nevertheless, Mr Bernanke turns a convenient blind eye, preferring to dwell on outdated computers and data sourcing. He does turn the screw in places, comparing the Bank’s forecasting record, for instance, with six other central banks and finding it was the worst at understanding the dynamics in the jobs market, consistently forecasting higher unemployment that never materialised.
This can beg the question as to what Mr Bernanke's review is for? But here the peers taking a close look kicks in again. Having asked the esteemed American for his time and effort, and of course, his expertise, Mr Bailey and chums are not able to turn round and ignore him.
They’ve accepted every one of his recommendations, saying they will “act on all” of them. It’s a pity there weren’t 13, 14, 15 recommendations requiring some tough soul-searching by Mr Bailey and co regarding their own positions, but there are not, so a dozen it is.
Still, as Mr Bailey stresses – possibly out of a sense of relief – that marks part of a “once-in-a-generation” opportunity to modernise. So, he was quick to note, an IT upgrade is already under way.
It’s much easier to blame the tools and not the people, especially if they are your pals and drawn from the same social milieu. It raises another issue, which is that Mr Bernanke is caustic about the forecasting technology, known as Compass, so why did it need an outsider to say it? Why was Mr Bailey not on top of the problem, why was he content to chug along in an underpowered car?
The car analogy is apposite because Mr Bernanke warns that updating the model will be “like fixing a car when the engine is running”. In other words, there may well be some serious glitches ahead.
There are moments reading it, and this is one of them, when Mr Bernanke could be talking about the state of Britain overall, not its central bank. Staff are overstretched and insufficiently experienced, they move around too frequently.
The Bank, like the nation, is a creature of habit, struggling to adapt, reluctant to give up old ways for the new. It hesitates to take on board geopolitical crises, defaulting towards the notion of “stay calm”. The rest of the world may be panicking but not it seems, the British.
The MPC has a funny attitude towards the meaning of the word “target”. The target rate for UK inflation is 2 per cent. It’s a target, a goal. But the Committee treated it with certainty, as the baseline, saying their forecasts would fall back to it over time and that consumer and market expectations were fixated on 2 per cent as the likely result – when recent reality has shown this to be woefully low.
Communications must be improved. There’s too great a fixation on numbers and not enough on what the members of the MPC actually think. He calls for an improvement to communications but stops short of advocating the US practice of requiring the members of the Fed to publish their own analysis of interest rates and where they’re going.
Not only would it put the UK’s MPC members on the spot, including Mr Bailey, but it would show if the body were prone, as some – among them Mr Bernanke – suspect, of falling into “group think”.
Mr Bailey is let off. But only for so long. He’s got Mr Bernanke’s 12 steps, once he’s pursued them, what then? He’s run out of road and excuses. In one respect, the US central banking veteran has dealt the UK incumbents a favour. In another, they’ve nowhere else to turn, they can’t instigate another peer inspection. The future starts here, post-Bernanke, and that doesn’t feel so cosy after all.
