In its latest poll the Shadow Monetary Policy Committee (SMPC) narrowly voted to leave Bank Rate unaltered at its present 1% on Thursday 5th March. In particular, five members of the Institute of Economic Affairs shadow committee voted to hold Bank Rate, while four members advocated a reduction of 0.5%. Before last autumn, such a close vote on the part of the SMPC might have been considered a cliffhanger. However, times have changed and none of the shadow committees members thought that further reductions in Bank Rate were likely to have a powerful stimulatory effect on the wider economy. Instead, the SMPC membership generally believed that the real monetary action lay with the implementation of the quantitative easing measures announced in the February Bank of England Inflation Report and the attempt to re-structure the commercial banking system so that normal lending practices could be restored.
The IEAs shadow committee has advocated the adoption of quantitative easing for some time, and has been ahead of the authorities in this respect. However, the SMPC has consistently stressed that any unconventional measures to increase monetary growth needed to be rapidly unwound, once they had done their work, to avoid a longer-term inflation problem. Concern was also expressed that the prospect of the largest and longest run of Budget deficits in Britains peacetime history meant that the UK economy had now sailed off the fiscal charts as well as the monetary ones.