Following its most recent gathering, held at the Institute of Economic Affairs (IEA) on 14th January, the Shadow Monetary Policy Committee (SMPC) decided by six votes to three that Bank Rate should be raised on Thursday 6th February. Four SMPC members voted for a 1⁄2% increase, two members wanted an increase of 1⁄4%, and three wanted to leave rates unaltered. This pattern of votes would deliver an increase of 1⁄4% on normal Bank of England voting procedures.
There were several reasons why a majority of the IEA’s shadow committee wanted to raise rates now rather than wait until the recovery had gathered further momentum. The most important was the belief that starting interest rate normalisation immediately would avoid a damaging over-steer in the opposite direction at a later date. This argument was opposed by some SMPC members, however, who thought that less damage would be done by waiting than by raising rates prematurely. The other main disagreement within the IEA’s shadow committee was over the margin of spare capacity that remained available. The SMPC’s ‘doves’ believed that ample spare resources remained. The ‘hawks’ thought that there had been a major reduction in aggregate