Following its most recent quarterly gathering, held at the Institute of Economic Affairs (IEA) on 15th October, the Shadow Monetary Policy Committee (SMPC) decided by six votes to three that Bank Rate should be raised on Thursday 7th November. 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 a variety of reasons why a majority of the IEA’s shadow committee wanted to raise rates now rather than wait until the recovery had gathered momentum and was incontestably apparent. One was a desire to start the process of interest rate normalisation sooner rather than later to avoid a damaging over-steer in the opposite direction, perhaps after the likely May 2015 general election. Another reason was to warn people thinking of taking out mortgages to buy properties, which still appeared significantly over valued by historic standards, of the potential capital loss they were taking on when (or if) rates returned to normal. Both SMPC hawks and doves agreed that the recent UK data had been stronger than was expected earlier this year, although the poll was compiled before the ‘flash’ output measure of UK GDP in the third quarter was released on 25th October, which showed quarterly and annual rises of 0.8% and 1.5%, respectively. The main disagreement between the two groups was over the margin of spare capacity still available. The doves believed that ample spare resources remained while the hawks thought that there had been a major reduction in aggregate supply as a result of the ‘big government’ policies implemented since 2000.
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 because it is impractical for every member to vote every month. 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 two e-mail polls will be released on the Sundays of 1st December and 5th January, respectively, while the next quarterly SMPC gathering will be held on Tuesday 14th January and its minutes will be published on Sunday 2nd February.