Following its most recent quarterly gathering, held at the Institute of Economic Affairs (IEA) on 17th April, the Shadow Monetary Policy Committee (SMPC) decided by a narrow margin of five votes to four that UK Bank Rate should be held at 1⁄2% on Thursday 10th May. Three members of the shadow committee wanted to raise Bank Rate by 1⁄4%, while a fourth argued for an increase of 1⁄2%. This result reflected the increasingly ‘hawkish’ trend in the SMPC vote that has appeared during recent months, while still leaving a narrow majority in favour of holding rates. All the IEA shadow committee members recognised the uncertainties attached to UK economic developments, events in the Eurozone, and the need to restore financial balance sheets, and were well aware that a flexible and pragmatic response to events was the only sensible course.
Most SMPC members thought that there should be no additional QE in the short term, although there was a divergence of view with respect to the appropriate policy subsequently. Some members believed that further QE tranches would be required because of the weakness of the economy, others wanted to hold the existing stock, and one member thought that QE now needed to be unwound to avoid longer-term inflation risks. The SMPC poll was finalised after the disappointing March inflation figure, which was released on the morning of the gathering, but before the publication of the negative first quarter real GDP growth figure on 25th April. However, the SMPC had already concluded on 17th April that the official data was no longer fit for purpose where the national accounts were concerned.
The SMPC has gathered quarterly at the IEA since July 1997. That it was the first such group in Britain, and that it assembles regularly 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 lead to changes in the aggregate vote, depending on who contributed to a particular poll. The nine independent SMPC analyses are correspondingly more significant than the precise vote. The latter is not intended as a forecast of what the Bank of England will do but as a declaration of what the SMPC believes it should do. The following two SMPC e-mail polls will be released on the Sundays of 3rd June and 1st July, respectively. The next SMPC meeting will be held on Tuesday 10th July and its minutes will be published on Sunday 29th July.