Following its most recent quarterly gathering, held at the Institute of Economic Affairs (IEA) on 10th July, the Shadow Monetary Policy Committee (SMPC) decided by seven votes to two that Britain’s Bank Rate should be held at 1⁄2% on Thursday 2nd August. Both dissenters wanted to raise Bank Rate by 1⁄2%. There was a range of views with respect to the efficacy, as well as the desirability, of the additional £50bn of quantitative easing (QE) announced on 5th July. Two shadow committee members supported this move, another pair thought that QE would work better if the range of assets was extended to include more private debt, one did not want to see the extra £50bn implemented, and four were reasonably agnostic on the issue, while advocating QE in a lender of last resort situation.
More generally, there was a widespread view on the SMPC that, under the current unusual circumstances, small changes to Bank Rate, had the power of a rifle, and QE was the equivalent of a large bomb, but financial regulation had a destructive potential akin to that of a tactical nuclear weapon. The committee argued that the policy inconsistency between over aggressive financial regulation and the need to stimulate money and credit creation – to get the real economy moving – was more than cancelling out the stimulatory effects of the 1⁄2% Bank Rate and £375bn of QE. There was also a strong consensus that the tax-and-spend policies pursued in the first decade of the 21st century – when combined with serious policy errors since the 2010 election, such as the VAT hike – meant that the sustainable growth rate of the UK economy was now little more than 1% per annum.
The SMPC is a group of economists who have met quarterly at the IEA since July 1997. That it was the first such group in Britain, and that it gathers regularly to debate the issues involved, distinguishes the SMPC from similar exercises elsewhere. Because the committee casts exactly nine votes each month, it carries a pool of ‘spare’ members since it is impractical for every member to vote every time. This can lead to changes in the aggregate vote, depending on who contributed to a particular poll. As a consequence, the discussion and nine independent analyses should be regarded as more significant than the precise vote. The next two e-mail polls will be released on the Sundays of 2nd and 30th September, respectively. The next SMPC gathering will be held on Tuesday 16th October and its minutes will be published on Sunday 4th November.