SMPC votes to raise interest rates - 7th May 2007

SMPC votes to raise interest rates by 0.25% by seven votes to two but rejects 0.5% increase

At its latest meeting, the IEA’s Shadow Monetary Policy Committee (SMPC), a group of leading monetary economists that monitors developments in UK monetary policy, voted to raise interest rates by seven votes to two. A vote to raise rates by 0.5% was lost by five votes to four.

The majority of SMPC members were concerned about the medium-term growth in broad money, which, they believed, has caused the recent rise in CPI inflation to above 3%. It was noted that inflation as measured by the old RPIX target measure was even higher than CPI inflation.

Many members believed that the Bank of England risked a serious breach of credibility if it did not act decisively to steer inflation back towards the 2% target. Though, in the short run, inflation would fall, the current lax monetary conditions did not bode well for the medium term.

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