In its latest monthly e-mail poll, completed on 29th May, the Shadow Monetary Policy Committee (SMPC) decided by six votes to three that UK Bank Rate should be held at ½% in June. Two dissenters wanted a rise of ¼%, while one argued for an increase of ½%. There was a divergence of view with respect to the desirability of further quantitative easing (QE). Two members wanted an additional £50 billion of QE in the near future; another called for an extra £100 billion. At the other extreme, one member believed that a start should be made on clawing back the current stock of QE and that this should be fully unwound over the next few years. Most SMPC members were more agnostic, however. It was accepted that QE was a useful implement when the central bank had to act as a lender of last resort, but less confidence that it would act as a major stimulus to the real economy. It was also felt that it was better for the authorities to avoid excessive regulation of the banking system in the first place than to try to offset the negative monetary and credit consequences through QE.
However, there were also areas where there was significant consensus. One was that the slightly more buoyant labour market statistics were probably a better guide to the true strength of the economy than the weaker GDP growth figures. Another was that many of Britain’s economic difficulties reflected a poor supply-side performance that could not be cured by expansionary demand-side measures alone. A third area of agreement was that the difficulties within the Euro-zone had reached the point where a break up would be less damaging than a continuing war of attrition against the centrifugal forces involved.
The SMPC is a group of economists who have met quarterly at the Institute of Economic Affairs (IEA) since July 1997. That it was the first such group in Britain, and that it gathers to debate the deeper 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 change the aggregate vote, depending on who contributed to a particular poll. The nine independent analyses are correspondingly more significant than the precise vote. The latter is not a forecast of what the Bank of England will do but a declaration of what the SMPC believes it should do. The next SMPC gathering will be on Tuesday 10th July and its minutes will be published on Sunday 29th July. The next two SMPC e-mail polls will be released on the Sundays of 1st July and 2nd September, respectively