At its latest meeting, the IEAs Shadow Monetary Policy Committee, a group of leading monetary economists that monitors developments in UK monetary policy, voted to raise interest rates by five votes to four.
There was a significant change of mood from previous meetings. Two members who wished to raise rates expressed a bias to raise rates further in the future. Two members who voted to hold rates had a bias to raise rates at some point in the near future. Prof. Patrick Minford, of Cardiff University Business School, who had previously voted regularly to cut rates, was now sufficiently nervous about the situation to decide against cutting rates.
Many members were worried about sustained increases in the measures of monetary growth. Tim Congdon said, M4 money growth has been in double digits for nearly two years I expect above trend growth of demand followed by inflation.
David B Smith, Chairman of the SMPC, expressed concern about the rise in inflation that had been announced earlier in the month and also did not believe that the UK could keep such low levels of interest rates when they were being raised in the USA and Europe. He argued that we could not be completely insulated from the international position.
The minority view on the committee felt that there was insufficient evidence of inflation becoming established and there were concerns about the strength of economic activity. On balance, four members felt that we should wait for further developments both in inflation and in the real economy, before moving interest rates.