Following its most recent quarterly gathering, held at the Institute of Economic Affairs (IEA) on 16th October, the Shadow Monetary Policy Committee (SMPC) decided by six votes to three that Britain’s Bank Rate should be held at ½% on Thursday 8th November. Among the dissenters, one wanted to raise Bank Rate by ¼% and another wished to see a ½% increase while – at the opposite extreme – one shadow committee member thought that Bank Rate should be reduced to a nominal 0.1%. Looking further ahead, six SMPC members believed that Bank Rate should be raised in the near future, provided there were no further major shocks arising from overseas, and seven said that there should be no additional tranche of quantitative easing (QE). However, two members voted to increase the stock of QE by £50bn and £200bn, respectively. In addition, several SMPC members argued that QE would be more effective if it included the purchase of more private sector assets.
There was a widespread view on the IEA’s shadow committee that a substantial part of the UK’s poor growth performance since 2008 reflected supply-side weaknesses, including those caused by the hugely increased share of government and government-financed expenditures in national output since 2000, and that these weaknesses could not be overcome by injecting more nominal demand into the system. Unfortunately, the contrast between the weak output figures and the stronger trend showed by the labour market data up to 2012 Q2, made it hard to know how much spare capacity was available. However, the strong third quarter GDP figures, released after the SMPC gathering on 25th October, suggest that the underlying growth trend currently may be the equivalent of some 1¼% 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 December and 6th January, respectively. The next SMPC gathering will be held on Tuesday 15th January 2013 and its minutes will be published on Sunday 3rd February.