Hold bank rate and expand QE argue SMPC - September 2009

No major change to current policy required

In its latest poll the Shadow Monetary Policy Committee (SMPC) voted to leave Bank Rate at 0.5% when the Bank of England’s rate setters meet next on 10th September. The unanimous SMPC vote reflected the belief that there was no immediate case for a rate increase – although one member thought that Bank Rate needed to be raised to 2% before the end of this year if inflation was to remain subdued through 2010 - combined with the view that Quantitative Easing (QE) still remained the most effective monetary policy instrument available to the authorities. A strong majority of SMPC members believed that the total assets purchased under QE would ultimately need to be raised to significantly over £200bn and, perhaps, up to £300bn. These figures are well above the £175bn to which the Bank of England committed itself at its August meeting and also greater than the £200bn that the Governor and two external MPC members had argued for, although they were out-voted in the event.

Most members of the shadow committee believed that the downwards momentum in the UK economy was ameliorating, and that recent surveys painted a more promising picture for activity in the third quarter.