SMPC votes to cut interest rates - October 2008

SMPC changes direction to support interest rate cut by seven votes to two

In its latest monthly deliberations the IEA Shadow Monetary Policy Committee (SMPC) voted by seven votes to two to reduce UK Bank Rate on Thursday 9th October.

Four members of the shadow committee were in favour of cutting Bank Rate by 0.5% in October while three favoured a more cautious 0.25% reduction. This would deliver a 0.25% reduction according to the voting procedures employed by the Monetary Policy Committee (MPC). The two dissenters both favoured holding Bank Rate at 5% in October although one of the pair had a bias to ease in November. All but one of the rate cutters – who preferred to wait and see how the official takeover of Bradford and Bingley was financed – also had a bias to ease further in subsequent months and no one had a tightening bias.

There was a widespread view that the major financial failures of recent weeks, and some easing in the price of oil, had significantly altered the output inflation trade off facing the authorities but also that the traditional instruments of monetary policy were less effective under these circumstances. One member suggested that changes in the official discount rate were now of as much use as a peashooter in a major tank battle.

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