SMPC votes by narrow margin to hold Bank Rate in July

SMPC votes 5-4 to hold rate

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