In its most recent poll, finalised on 2nd January, the Institute of Economic Affairs (IEA) Shadow Monetary Policy Committee (SMPC) decided by six votes to three that Bank Rate should be raised on Thursday 9th January. Four shadow committee members wanted a 1⁄2% increase and two SMPC members voted for a rise of 1⁄4%, while three wished to leave rates unaltered. This pattern of votes would deliver an increase of 1⁄4% on the usual Bank of England voting procedures.
Despite the split vote, there was considerable agreement amongst the SMPC members that the British economy had picked itself up off the floor at last and that growth prospects for the next year or so were reasonable. Several individuals mentioned the upwards revisions to UK national output published just before Christmas. These suggest that the economy expanded by 1.9% on average last year, rather than the 1.4% which had previously seemed likely. However, there was also concern that the dismal third quarter balance of payments figures released alongside the GDP figures indicated that home demand was running ahead of potential supply. Nevertheless, the immediate inflation outlook seemed reasonable, with some prospect of a further easing during 2014. The essential splits between Hawks and Doves were over the margin of spare capacity still available and how far it was urgent to commence the process of normalising real interest rates. There was also concern that forward guidance made it difficult for the Bank to act pre-emptively when the economic situation suddenly changed. Several committee members independently warned about the risks to the recovery posed by potentially over-zealous financial regulation.
The SMPC is a group of economists who have gathered quarterly at the 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. As a result, the nine independent analyses should be regarded as more significant than the exact vote. The next quarterly SMPC gathering will take place on Tuesday 14th January and its minutes will be published on Sunday 2nd February. The next two SMPC polls will be released on the Sundays 2nd March and 6th April, respectively.