The Economic Affairs Committee has said that the operational independence of the Bank of England (BoE) should be preserved but "reforms are vital" to improve its performance.

Other recommendations by the committee include strengthening the BoE’s accountability to Parliament, and ensuring it focuses on its key objectives of tackling inflation and maintaining financial stability.

As part of the committee’s report, Making an independent BoE work better, the committee assessed the operational independence of the Bank, alongside the rise in inflation and the resulting loss in public confidence in it.

It comes 25 years after the BoE was made operationally independent from Parliament.

The committee said that all central banks, including the BoE, have made errors in the conduct of monetary policy in recent years in recent years, with high rates of inflation being incorrectly forecast to be “transitory”.

Possible reasons for this include a perceived lack of intellectual diversity in the BoE and other central banks, which contributed to insufficient challenge as regards to modelling and forecasts.

As part of the report, the Economic Affairs Committe has made a number of key recommendations. These include stating that the Treasury should "prune" the BoE’s much-expanded remit, with a focus on the number of matters it is expected to "have regard to" or "consider", to ensure the Bank is focused on its objectives of tackling inflation and ensuring financial stability.

Other recommendations state that the BoE must do more to foster a diversity of views and develop a culture that encourages challenges. Areas that need attention, according to the Committee, include governance, hiring practices and appointments.

The report also stated that Parliament should conduct an overarching review of the Bank’s remit and operations every five years, enhancing Parliament’s ability to hold the BoE to account and express its view on the BoE’s performance and leadership.

Chair of the House of Lords Economic Affairs Committee, Lord Bridges of Headley, said: "While we are of the strong view that independence should be preserved, reforms are needed to improve the Bank’s performance and to strengthen its accountability to Parliament.

"The Bank should learn from the errors it made – along with other central banks – in the conduct of monetary policy during the recent period of higher inflation. But that alone is not enough. The Treasury must prune the Bank’s expanded remit so the Bank can focus on controlling inflation and maintaining financial stability.

"Given the powers that unelected Bank officials wield, Parliament should conduct a review of the Bank’s remit, performance and operations every five years. Independence and accountability should go hand in hand. At the moment, we are suffering from a democratic deficit."

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