Following its latest meeting the IEA Shadow Monetary Policy Committee (SMPC) voted to leave Bank Rate unaltered at 1.5% on Thursday 5th February. In particular, six members of the Institute of Economic Affairs’ shadow committee voted to hold Bank Rate in February, while three members advocated another reduction of 0.5%. There was a widespread view on the SMPC that further reductions in Bank Rate would only have a limited further stimulatory effect on activity. Instead, a majority of the shadow committee’s members thought that direct action should be taken to ensure that a collapse in the broad money stock did not lead to a depression.
However, the SMPC also stressed that any unconventional measures to directly increase monetary growth needed to be rapidly unwound, once they had done their work, to avoid a longer-term inflation problem. There was concern that political considerations, and co-ordination problems between the Bank, HM Treasury, and the Debt Management Office, might make it difficult to achieve this unwinding in practice, however.
