Five Key Ways the Bank of England Outperformed Its Peers

(Bloomberg Opinion) — While the Sunak government has not hesitated in claiming credit for the return of the UK inflation rate to 2% after three years of exceeding that target, the Bank of England has proven notably reserved despite the country now having fewer price pressures than France, Germany and the US. Part of this modesty reflects concern that the rate of inflation may go back up by the end of the year.

But there is also a cultural aspect at play. The Bank tends to be humble in highlighting its accomplishments, despite these being at the forefront of central bank practice and despite some already having been replicated by other central banks. Sounds strange? It shouldn’t. Here are five ways in which the Bank has outperformed many others in recent years:

For starters, it was the first to recognize that it had been a mistake to describe the 2021-22 inflation surge as transitory, and it was quick to publicly share an assessment of what led to the mischaracterization.

Second, the Bank aptly handled the critical risk of financial disorder during the Liz Truss period while limiting the moral hazard risk. I certainly will not forget when, in the face of hedge funds stubbornly declining to close out their overleveraged positions at a loss, Governor Andrew Bailey stood firm on that famous Tuesday in reminding the funds that the Bank’s exceptional financial support would end on the Friday – and it did, with the funds backing down.

Third, rather than signal false precision as the Federal Reserve repeatedly does via its dot plot, the Bank is clear about the unusual uncertainty facing policymaking these days. The message is further reinforced by the publication of the voting results of the Monetary Policy Committee, the top policymaking body, which more than once has included split votes with members on both sides of the majority decision.

Fourth, the Bank had no hesitation in commissioning an external review of its forecasting models and approach even though the prediction errors have been no worse than those of other major central banks. The result of this review was published and discussed during a press conference.

Finally, it is the only major central bank in the advanced world to have external appointments on its top policymaking committee, conscious of the importance of cognitive diversity and its role in combating dangerous groupthink.

Now, please don’t get me wrong. I am not suggesting that the Bank of England is perfect. It has tripped up in this unusual economic, financial, and political world we are living in. Yet it has been better than others, including in its honesty, humility, and willingness to learn from its mistakes.

More From Bloomberg Opinion:

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

More stories like this are available on bloomberg.com/opinion