The Bank of England’s reliance on “inadequate” forecasting models and a lack of intellectual diversity within its most senior ranks contributed to inflation sticking at among the highest levels in decades, a Lords report has found.

In a report critical of Threadneedle Street, the powerful Lords economic affairs committee said the central bank had made “errors” in its handling of the inflation shock triggered after the Covid pandemic and Russia’s invasion of Ukraine.

Highlighting incorrect forecasts made in 2021 for inflation to cool, it said possible reasons included a “perceived lack of intellectual diversity” at the central bank.

At the time, it expected inflation to fall back as global supply bottlenecks eased, while the end of the government’s furlough scheme complicated its decision.

Energy prices were rising before the war, but then surged to among the highest levels on record after the February 2022 invasion, driving UK inflation to peak at a 41-year high of 11.1% by October 2022.

Calling for reforms to help manage future inflation shocks, the Lords report said the government should “prune” the Bank’s remit to reduce the number of issues it is focused on, while introducing a review of its responsibilities every five years.

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