In its most recent monthly e-mail poll, completed on 28th August, the Shadow Monetary Policy Committee (SMPC) decided by six votes to three that Britain’s Bank Rate should be held at ½% when the official rate setters meet on Thursday 6th September. Two dissenters wanted to raise Bank Rate by ½%, while another desired an increase of ¼%. There was a further divergence with respect to the desirability of further quantitative easing (QE). Most SMPC members were content to complete the existing programme – except for one who wanted an immediate phased programme of withdrawal – but there was no consensus whether QE should then be held or a further tranche introduced later on this year. However, there was widespread agreement that QE would have to be used aggressively if the Bank of England again found itself in a lender of last resort situation, perhaps as a result of events in the Eurozone.
In addition, there was a consensus on the SMPC that the UK economy was broadly flat lining, but that the official growth figures were so dubious that it was impossible to be more precise. Several SMPC members noted the contrast between the weak output figures and the stronger picture painted by the labour market statistics. A substantial body of opinion also thought that output was supply constrained – perhaps as a result of the massive increase in the socialisation of the economy in the first decade of the 21st Century – and that bold supply-side reforms were a necessary condition to get the economy motoring again. Without these, any further monetary stimulus would be dissipated in higher inflation.
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 by a number of publications. Because the committee casts exactly 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. As a consequence, the nine independent analyses should be regarded as more significant than the precise vote. The next SMPC gathering will be held on Tuesday 10th July, with its minutes to be published on Sunday 29th July. The next two discussions will be released on the Sundays of 2nd August and 30th September, respectively.