In its most recent e-mail poll, finalised on 31st December, the Shadow Monetary Policy Committee (SMPC) decided by seven votes to two that Bank Rate should be held at ½% on Thursday 10th January. One dissenter wanted to raise Bank Rate by ½%, while another desired an increase of ¼%. Most SMPC members thought that there should be no additional Quantitative Easing (QE), given that annual broad money growth had recently picked up to 4% to 4¼%. However, additional QE might still be needed if this monetary acceleration went into reverse. More generally, unduly heavy handed financial regulation was seen as a major cause of the UK’s weak money and credit growth. Using QE to offset regulatory shocks was a roundabout and undesirable way of stabilising the monetary aggregates. Less intrusive regulation, and reduced QE, was a simpler and better course.
Several SMPC members expressed their disquiet about the fiscal weakness revealed in the 5th December Autumn Statement. This made an unpropitious background to the conduct of monetary policy. In addition, the rapidly diminishing credibility of the official fiscal projections made it difficult for the Bank of England to carry conviction, especially given its history of inflation overshoots. With the volume of general government current expenditure in the third quarter of 2012 already 4.5% higher than the Chancellor had intended in 2010, it was also felt that Mr Osborne was already on ‘Plan G’ or ‘Plan H’, let alone the ‘Plan B’ advocated by Labour. Some SMPC members expressed reservations about the idea that nominal GDP targets should replace those for inflation. Nominal GDP targeting was a theoretically appealing concept but was likely to prove a nightmare to implement in practice.
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 15th January 2013 and its minutes will be published on Sunday 3rd February. The next two SMPC e-mail polls will be released on the Sundays of 3rd and 31st March, respectively.