Following its latest gathering, the Shadow Monetary Policy Committee (SMPC) voted by seven votes to two to
leave Bank Rate unchanged at the 0.5%, first set in March 2009, when the Bank of England’s rate setters announce
their rate decision on Thursday 5th August. The two SMPC dissenters both voted that Bank Rate should be raised
to 1% immediately. However, there was no strong bias as to where Bank Rate should go in subsequent months.
This was because the international and domestic uncertainties were such that ‘playing it by ear’ was the only feasible option. A similar consideration applied to Quantitative Easing (QE). The entire SMPC believed that QE
should be kept on standby but only a minority wanted its immediate reintroduction. One reason for the high level of
uncertainty – that might be alleviated by appropriate institutional changes – was the potentially remediable
inadequacies of the UK official statistics. Both SMPC hawks suspected that Bank Rate would have to rise beyond
1%, but only if circumstances justified it.
One thing highlighted by the shadow committee’s deliberations was the importance of the shift of economic
potential from the US, Europe and Japan to the East Asian emerging nations, where bank balance sheets were
broadly sound and recovery had been quicker and stronger as a result. Particular concern was expressed about
the outlook for the US economy in 2011 because of the headwinds arising from the expiry of the Bush tax cuts at
the start of the year – which will lead to noticeable rises in some marginal rates – and the recent ending of a tax
subsidy for new home buyers. The SMPC vote was taken before the release of the strong UK growth figures for the
second quarter on Friday 23rd July, which showed non-oil national output 2% higher than it had been four quarters
previously. However, nobody altered their vote as a consequence. This was partly because of doubts about the
reliability of the figures.