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Could the Bank of England have avoided mis-forecasting UK inflation during 2021–24?

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  • Castle, Jennifer L.
  • Doornik, Jurgen A.
  • Hendry, David F.

Abstract

The Bank of England badly mis-forecast UK annual consumer price inflation as it rose rapidly from 2021, prompting a review by Ben Bernanke. This raised many important issues, but other crucial problems were not addressed, as we discuss. Unpredictable shocks explain some of the bank’s forecast failures, but tardy reactions also mattered. We show that successive large and increasing same-sign one-step-ahead forecast errors contain the information to estimate broken trends, applied to forecasting the UK’s inflation over 2021–24. Compared with Bank of England projections, substantial gains in forecast performance can be made by rapidly detecting trend breaks and updating forecasting models when they occur.

Suggested Citation

  • Castle, Jennifer L. & Doornik, Jurgen A. & Hendry, David F., 2026. "Could the Bank of England have avoided mis-forecasting UK inflation during 2021–24?," International Journal of Forecasting, Elsevier, vol. 42(1), pages 13-21.
    • Handle: RePEc:eee:intfor:v:42:y:2026:i:1:p:13-21
    DOI: 10.1016/j.ijforecast.2025.07.001
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    References listed on IDEAS

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    1. Jennifer L. Castle & David F. Hendry & Andrew B. Martinez, 2017. "Evaluating Forecasts, Narratives and Policy Using a Test of Invariance," Econometrics, MDPI, vol. 5(3), pages 1-27, September.
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    6. Hendry, David F., 2006. "Robustifying forecasts from equilibrium-correction systems," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 399-426.
    7. Hendry, David F. & Pretis, Felix, 2023. "Analysing differences between scenarios," International Journal of Forecasting, Elsevier, vol. 39(2), pages 754-771.
    8. Jennifer L. Castle & Jurgen A. Doornik & David F. Hendry & Felix Pretis, 2015. "Detecting Location Shifts during Model Selection by Step-Indicator Saturation," Econometrics, MDPI, vol. 3(2), pages 1-25, April.
    9. Hendry, David F. & Mizon, Grayham E., 2014. "Unpredictability in economic analysis, econometric modeling and forecasting," Journal of Econometrics, Elsevier, vol. 182(1), pages 186-195.
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    11. Hendry, David F. & Johansen, Søren, 2015. "Model Discovery And Trygve Haavelmo’S Legacy," Econometric Theory, Cambridge University Press, vol. 31(1), pages 93-114, February.
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    13. Andrew B. Martinez & Neil R. Ericsson, 2025. "Improving empirical models and forecasts with saturation-based machine learning," Annals of Operations Research, Springer, vol. 346(1), pages 447-487, March.
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