In its most recent monthly discussion, completed on 27th June, the Shadow Monetary Policy Committee (SMPC) decided by a narrow five votes to four that UK Bank Rate should be held at ½% when the official rate setters meet on Thursday 5th July. Two of the dissenters on the shadow committee wanted to raise Bank Rate by ½%, while another pair desired an increase of ¼%. There was also a divergence with respect to the desirability of further quantitative easing (QE). One shadow committee member wanted an immediate injection of a further £75bn and another asked for a £50bn increase. However, most SMPC members were content to leave the QE stock where it was for the time being – except for one who wanted a phased programme of withdrawal – but there was general acceptance that QE should be used aggressively if the Bank of England again found itself in a lender of last resort situation, perhaps as a result of events in the Eurozone.
There was a near unanimous view on the SMPC that there remained a serious policy inconsistency between financial regulators’ desire to gold-plate capital requirements and other restrictions on the size of commercial bank balance sheets and the official desire to get credit flowing again, especially to smaller enterprises. Some committee members thought that easing the regulatory push, while raising Bank Rate to a more neutral level, would represent a more coherent policy stance and bring increased credit growth and private-sector activity. The two big unknowns identified by the SMPC were the likely consequences of developments in the Eurozone and how far to trust the weak official growth numbers, as compared to the more buoyant labour market and survey data.
The SMPC is a group of economists who have gathered quarterly at the Institute of Economic Affairs (IEA) since July 1997. That it was the first such group in Britain, and that it gathers regularly to debate the issues involved, distinguishes the SMPC from the similar exercises carried out by a number of publications. Because the committee casts exactly nine votes each month, it carries a pool of ‘spare’ members since it is impractical for every member to vote every time. This can lead to changes in the aggregate vote, depending on who contributed to a particular poll. As a consequence, the nine independent analyses should be regarded as more significant than the precise vote. The next SMPC gathering will be held on Tuesday 10th July, with its minutes to be published on Sunday 29th July. The next two discussions will be released on the Sundays of 2nd August and 30th September, respectively.