In its most recent e-mail poll, completed on 27th March, the Shadow Monetary Policy Committee (SMPC) decided by six votes to three that UK Bank Rate should be held at ½% when the official rate setters meet on Thursday 5th April. The three dissenters all wanted to raise Bank Rate by ¼%. In addition, two of the members who voted to hold in April had a bias towards rate increases in the near future. Several of the ‘hikers’ also had a bias towards further rate increases subsequently. This represented the most hawkish position that the SMPC had adopted for some time. It reflected the views that: 1) money-market rates were so far above Bank Rate that the latter risked irrelevance; 2) some normalisation of Bank Rate up to, say, 2% was appropriate now that conditions had partly stabilized, and 3) the improved euro-zone situation provided a possibly, short-lived window of opportunity to normalise UK borrowing costs.
The predominant reason why most SMPC members voted to hold Bank Rate in April was the view that there remained ample spare resources in the British economy, despite some tentative signs of recovery, together with concern that broad money was still growing too slowly to sustain any upswing. There was a general view that the macro-economic impact of the 21st March Budget was broadly neutral, and did not warrant a change in rates. However, committee members questioned the desirability of adding further complications to a tax system that was already of baroque complexity and needed wholesale simplification and reform instead. There was a further concern that the Chancellor’s deficit forecasts were too optimistic and that a future British sovereign debt crisis could not be precluded if fiscal credibility was lost.
The SMPC has gathered quarterly at the Institute of Economic Affairs (IEA) since July 1997. That it was the first such group in Britain, and that it gathers regularly to debate the deeper issues involved, distinguishes the SMPC from the similar exercises carried out by a number of publications. 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. This means that the nine SMPC analyses should be regarded as being of more significance than the precise vote. The latter is not intended as a forecast of what the Bank of England will do but as a declaration of what the SMPC believes it should do. The next SMPC gathering will take place on Tuesday 17th April and its minutes will be published on Sunday 6th May. The next two SMPC e-mail polls will be released on the Sundays of 3rd June and 1st July, respectively.