Following its latest gathering, the Shadow Monetary Policy Committee (SMPC) voted by six votes to three to leave Bank Rate unchanged at 0.5%, when the Bank of England’s rate setters gather on Thursday 7th October. All three SMPC members who desired an increase voted that Bank Rate should be raised to 1%. The majority on the SMPC who wished to hold Bank Rate did so for several reasons. These included: the continued de-leveraging of private-sector balance sheets; the associated slow growth of broad money and credit, and concern that fiscal tightening in the forthcoming Comprehensive Spending Review would reduce activity. There was also a worry that the international recovery was running out of steam and that this would weaken UK export demand.
A number of considerations explained why three members of the shadow committee thought that a higher Bank Rate was needed. One was that persistent stubborn inflation could lead to a loss of central-bank credibility and an upwards ‘gear shift’ in inflation expectations. Another was the disconnection between Bank Rate and commercial banks’ mar