In its latest poll, the IEAs Shadow Monetary Policy Committee (SMPC) voted by seven votes to two to leave Bank Rate unchanged at its present 0.5% when the Bank of Englands rate setters meet on Thursday 8th April. The two dissenters both voted that Bank Rate should be raised to 1%, while recognising that any such rate change was unlikely so close to a general election. There was a widespread agreement amongst the SMPC membership that the 24th March Budget had not made the fiscal backdrop to monetary policy significantly worse than it was already. However, there was more debate as to whether high government spending and the large fiscal deficit provided a useful support for private sector activity or, alternatively, was crowding out the non-socialised sector of the economy and exacerbating the recession. Some SMPC members thought that, in the absence of the detail provided by the urgently required Comprehensive Spending Review, the governments commitment to enhanced spending discipline in the future was no more than an unrealisable paper promise.
There was also debate among the shadow committee as to whether Quantitative Easing (QE) should be resumed after the forthcoming election. Here, views were also mixed. Five members thought that the economy remained so weak that a resumption of QE probably would be required while two thought that the authorities should stand by to re-introduce QE, even if it was not needed immediately. Two members of the shadow committee preferred to wait and see whether QE should be resumed or not. There was, however, a widespread acceptance that the uncertainties were such that the optimal course was to respond flexibly to events as they arose. The fact that this was a pre-election period made it difficult for the Bank of England to take any politically controversial steps until the election was out of the way and more was known about the post-electoral fiscal background.