The Shadow Monetary Policy Committee (SMPC) voted by seven votes to two to hold UK Bank Rate at its current 5% on Thursday 4th September. The two dissenting members both favoured a 0.5% reduction to 4.5%. The vote understates the underlying dovishness of the shadow committee, however, since both cutters had a bias to ease further, five holders believed that the next move in rates should be downwards, and only two of the holders had a bias to tighten.
Several SMPC members drew attention to the downwards revision to UK national output in the second quarter, which suggested growth was weaker than earlier believed. However, there was also concern that the Bank of Englands credibility would suffer if interest rates were reduced at a time when it was still uncertain when - and at what level - inflation would peak. One member was concerned about the limitations that the UKs lax fiscal stance placed on the MPCs freedom of manoeuvre.
There was a general acceptance that this was an unusually tricky period for monetary policy makers and that the inflation outlook was heavily dependent on the essentially unknowable future price of oil.