In its most recent e-mail poll, which was finalised on 25th June, the Shadow Monetary Policy Committee (SMPC) decided by five votes to four that Bank Rate should be raised on Thursday 4th July. Four members of the shadow committee wanted an increase of 1⁄2%, while one advocated a rise of 1⁄4%. This split vote for a rate hike would imply a rise of 1⁄4% on normal Bank of England voting procedures. However, four SMPC members believed that Bank Rate should be held at its present 1⁄2% for the time being. Most members of the shadow committee saw no immediate justification for adding to the stock of Quantitative Easing (QE). Nonetheless, it was felt that the international economy was not yet out of the woods and that all monetary tools needed to be kept available on a standby basis.
Most SMPC members thought that the UK economy was showing signs of a modest recovery and that growth probably accelerated in the second quarter. However, there was less agreement as to whether recovery would continue or, alternatively, peter out in the second half of this year. One reason for wanting to raise Bank Rate in July was the belief that it was less disruptive to make the necessary rate hikes early and in a number of small increments than to leave it late and then possibly be forced to make a more abrupt move. There was a strong concern that ill-considered financial regulation was impeding money creation and credit extension to the private sector. However, current UK broad money growth was sufficient to sustain a non-inflationary recovery. The SMPC poll was completed before the 26th June Comprehensive Spending Review and a major re-working of the UK national accounts to be published on the 27th, which might introduce substantial revisions to the current data.
The SMPC is a group of economists who have gathered quarterly at the Institute of Economic Affairs (IEA) since July 1997. That it was the first such group in Britain, and that it gathers regularly to debate the issues involved, distinguishes the SMPC from the similar exercises carried out elsewhere. Because the committee casts precisely nine votes each month, it carries a pool of ‘spare’ members since it is impractical for every member to vote every time. This can lead to changes in the aggregate vote, depending on who contributed to a particular poll. The nine independent analyses should be regarded as more significant than the exact vote. The next SMPC gathering will be held on Tuesday 9th July and its minutes will be published on Sunday 28th July. The next two SMPC e-mail polls will be released on the Sundays of 1st September and 6th October, respectively.