The Bank of England should focus more on changes in the money supply and have a wider range of views among its interest rate-setters in order to better spot future surges in inflation, a panel of lawmakers advised on Monday.
The House of Lords' Economic Affairs Committee - whose members include former BoE Governor Mervyn King - also warned that the central bank was spread too thinly due to the wide-ranging remit given to it by the government.
"Climate change is the most-cited example of the expansion of the remit," committee chair George Bridges, a Conservative former Brexit minister, told Reuters.
Alongside controlling inflation and ensuring financial stability, the annual remits given to the BoE's main policy committees include secondary objectives to support government goals ranging from home ownership to energy security.
The House of Lords committee set up the inquiry in March, following a surge in inflation to a 41-year high last year.
The rise was fuelled by Russia's invasion of Ukraine but began after the BoE - like other central banks - had initially suggested big post-pandemic price increases would be fleeting.
The lawmakers said witnesses reported "a lack of intellectual diversity" at central banks which at the BoE led to an "over-reliance on inadequate forecasting models" and "a unanimity of view ... about the 'transitory' nature of above-target inflation" in 2020 and 2021.
Specifically, the report said the BoE should dedicate part of its quarterly forecasts to analysing trends in money supply - an approach to tackling inflation popular in the 1980s, but one which now plays only a small role in BoE thinking.
The BoE said it would give the report's recommendations careful consideration and respond in full later.
The central bank is midway through its own forecasting review led by former U.S. Federal Reserve Chair Ben Bernanke.
Last week finance minister Jeremy Hunt gave a slightly lower billing to climate change in his annual remit letter to the BoE's Financial Policy Committee than he did in 2022.
The House of Lords committee said parliament should have more opportunity to debate these changes, and should conduct in-depth reviews of the BoE's work every five years.
"There (is) a democratic deficit in terms of accountability that we think needs to be plugged," Bridges said.
Britain's finance ministry said the BoE already received regular scrutiny from parliament.
