In its latest poll, the IEA Shadow Monetary Policy Committee (SMPC) again voted unanimously to leave Bank Rate at 0.5% when the Bank of Englands rate setters meet on 9th July. The unanimous SMPC vote reflected the belief that there was little case for a rate increase in the near future even if one or two members were becoming slightly more trigger happy - combined with the view that 0.5% was close to the effective lower limit where the official interest rate was concerned. There was a widespread feeling among the members of the IEAs shadow committee that Quantitative Easing (QE) was the only effective monetary policy instrument presently available to the authorities. Several committee members believed that the present schedule of gilt purchases should be extended. Some members thought that an additional £100bn to £150bn of debt re-purchases was required once the current package had run its course.
The SMPC poll was largely carried out before the UK Office for National Statistics (ONS) announced a substantial downwards revision to its previous estimate of UK GDP in the first quarter of 2009, on Tuesday 30th June. The lower starting base tempered even further the modest hopes engendered by the early signs of green shoots appearing in the economy. One member pointed out that the shortfall of total OECD industrial production below its long-term trend was roughly twice as large in 2009 Q1 as it had been in any previous recession of the past half century. The size of this negative output gap limited international inflation risks in the immediate future. However, there was some concern that relatively robust monetary growth in the OECD area as a whole posed a longer-term inflation threat. Several SMPC members discussed the difficulties of interpreting the UK broad money data when the figures were so heavily distorted by the deposits of other financial corporations.