Following its latest quarterly gathering, the Shadow Monetary Policy Committee (SMPC) voted by a knife-edged margin of five votes to four to leave Bank Rate unchanged when the Bank of England’s rate setters assemble on Thursday 9th December. All four dissenting SMPC members believed that Bank Rate should be raised by 50 basis points to 1%. This recommendation is consistent with the old adage that borrowing costs came down in quarters but went up in halves. The SMPC majority who wished to hold Bank Rate in December recognised that the third-quarter data for the British economy had been reasonably encouraging. However, the five SMPC members concerned still regarded a rate hike in December as inappropriate. The reasons included: the continued de-leveraging of the banking system; the consequent slow growth of broad money and credit, and concern that the government’s fiscal tightening would reduce activity as it came into effect. The uncertain outlook for some other industrial economies was another reason why the majority of the SMPC favoured a rate hold.
A variety of considerations explained why four members of the shadow committee thought that a higher Bank Rate was needed. One was the disconnection between Bank Rate and commercial banks’ marginal funding costs, which meant that the official rate risked becoming irrelevant. Anoth