The Bank of England admitted on Friday that inflation has persistently turned out to be “materially higher” than its projections over the past five years, according to the first internal evaluation of the central bank’s forecasting performance.

Inflation exceeded one of the Bank of England’s forecasts by more than 8 percentage points at the end of 2022, the evaluation report found, owing to a 600 per cent increase in gas prices in the wake of Russia’s invasion of Ukraine.

Modelling carried out by the central bank’s economists found that the energy crisis accounted for around half, or 4 percentage points, of the inflation forecasting error.

The report will feed into criticism that the Bank of England was too late to notice the surge in the cost of living between 2021 and 2023, leading to accusations that interest rates did not rise quickly enough to tame rising prices.

Inflation peaked at a 40-year high of 11.1 per cent in October 2022, while the central bank lifted interest rates from near zero to 5.25 per cent in the space of less than two years. Rates have since been cut to 3.75 per cent, including four quarter point reductions last year.

The Bank said that “stronger-than-expected global export prices also contributed to the peak inflation forecast error”, adding that this stemmed from “disruption to global supply chains as economies reopened following Covid restrictions and strong demand for consumer goods, along with the indirect effects of rising energy prices”.

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As part of a review of the Bank’s forecasting process, Ben Bernanke, a former chairman of the US Federal Reserve, recommended that the Bank’s staff should identify and publicly explain errors in its projections. “This report addresses that suggestion,” the Bank said on Friday.

The central bank examined the accuracy of its economic forecasts between August 2021 and August 2025. It concluded that, over this period, “inflation data have more systematically continued to overshoot two and three years ahead projections”, partly down to the “strength in wage growth”.

Higher inflation expectations among workers and businesses caused by the drastic increase in living costs were “likely to have been a [more] significant driver” of unexpected price growth after the energy crisis subsided, the central bank concluded.

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Taking on board further recommendations from Bernanke, the Bank of England now regularly publishes different forecasting scenarios in which inflation proves to be lower or higher than expected. The central bank included these in the May and November 2025 economic projections.

At its latest meeting in December, the nine-members of the rate-setting monetary policy committee predicted that inflation would fall back to or be within touching distance of the 2 per cent target by the spring owing to a decline in household energy bills.

The Office for National Statistics said this week that inflation climbed to 3.4 per cent on an annual basis in December from 3.2 per cent in the previous month, the first rise since July.

Financial markets believe there is an outside chance that the Bank of England will lower interest rates twice this year to 3.25 per cent.

The Bank of England also concluded that it tended to undershoot its GDP growth forecast by about 0.5 percentage points. It said that the energy price cap and other measures to support households with living costs between 2022 and 2023 “helped to limit the fall in household incomes”, albeit at a cost of around £30 billion.