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(Bloomberg) — Ben Bernanke called on the Bank of England to consider publishing its own outlook for UK interest rates to improve the central bank’s forecasts and communication with investors and the general public. 

The former US Federal Reserve chair said BOE should release scenarios that show the best path for meeting the 2% inflation target if market rates or unchanged policy confuse its messaging. The suggestion came alongside 12 separate recommendations Bernanke made in an 86-page review into the way the BOE delivers its economic outlook.

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He added that the BOE’s forecasts are in urgent need of an upgrade and that it should scrap the fan charts that have been at the heart of its policymaking for more than two decades. Policymakers should be “exceptionally clear” when they believe market expectations for borrowing costs rates are “inconsistent with its view of the outlook,” he stressed.

The findings cap a nine-month probe launched by the BOE after members of Parliament from across the political spectrum and independent economists criticized the institution for being slow to act against the worst spell if inflation in four decades. 

Bernanke said the BOE can learn lessons from the experience, but concluded that its forecasts were no worse than other major central banks or private sector economists. While the BOE’s forecasts “did indeed worsen significantly,” the recent challenges it faced “were hardly unique,” he said.

BOE Governor Andrew Bailey welcomed the report and said he would pursue a “once in a generation” overhaul of the bank’s practices. He said officials are “committed to taking action” on all of Bernanke’s 12 recommendations, but it would take time and further consultation to develop detailed plans.

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The BOE said it will provide an update on what changes it will make by the end of the year. Clare Lombardelli, who joins the BOE in July as deputy governor for monetary policy, will lead the response. Changes will be phased in gradually.

Bernanke stopped short of recommending that nine members of the Monetary Policy Committee chart their forecasts for rates, as Fed rate-setters do through the “dot plot” projections he introduced at the US central bank. 

“I think the right model would not be the Fed’s dot plot because the Fed does not have the consultation of the staff and the policymakers the way that the Bank of England does,” he said. “Instead, if the bank were to go in this direction, a better model would probably be central banks like the ones in Sweden, Norway, Canada, New Zealand and so on.”

However, he said that the BOE should publish alternative scenarios alongside its central forecast, a recommendation the central bank has vowed to take action on. “Alternative scenarios would help the public better understand the reasons for the policy choice,” he said.

“One thing to consider in the long run is having your own forecast for rates,” Bernanke told reporters in a briefing ahead of the review’s publication. Using current conventions can “lead to clouding the interpretation of what the committee is trying to say.” 

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He rejected claims that the markets would take any rate path published by the bank as a cast iron commitment. “While experience shows the financial markets listen, pay attention to the rate projections, they certainly don’t take them as commitment or absolute certainties. We know that from the Fed,” he said.

As well as a central forecast using the market path for interest rates, he said the BOE should publish at least one alternative policy scenario and one or two possible risk scenarios. Those could be used to indicate the path for interest rates the MPC believes is most likely. The bank said it will look into this recommendation.

The proposal appears to be similar to the way Sweden’s Riksbank operates. It publishes a central forecast for the economy supported by alternative scenarios plotting out paths for policy if inflation is weaker or stronger. 

Parts of the review were damning about the BOE’s economic models, infrastructure and communications. The software and models used to produce its forecasts are “out of date” and “not adequately maintained.” He said that “makeshift fixes” have resulted in an unwieldy and inflexible system, limiting the ability of staff to conduct useful analysis. 

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Bernanke recommended that the BOE replace or thoroughly revamp the economic model that underpins its projections. This will require a “significant increase in staff time and resources.” Bailey said the upgrade was underway as part of a £30 million investment in its software and systems. 

The former Fed chair said that the fan charts — which show a range of probabilities around its central forecasts — should be “eliminated” as they “convey little useful information.”

Since the review was launched last July, inflation has halved from 6.8% to 3.4% in the latest data for February. The BOE expects it to slip below its 2% target in April’s data, though it is still wary over declaring victory because of sticky underlying pressures and rapid wage growth.

Several BOE rate-setters have raised doubts over adopting Fed-style dot plots in the UK. Bailey said he was in “two minds” about dot plots, while external rate-setter Catherine Mann said the BOE does better than them by revealing individual votes and following up with speeches and interviews. Megan Greene, another external policymaker, cautioned that the markets “do not understand dot plots as they are intended.” 

(Updates with quotes from Bernanke and detail.)

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