In its most recent poll, the Shadow Monetary Policy Committee (SMPC) voted by eight votes to one that Bank Rate should be held at ½% when the official rate setters make their announcement on Thursday 8th December. The sole dissenting SMPC member wanted to raise Bank Rate to 1% immediately. The overwhelming reason why most SMPC members voted to hold in December remained their grave concern over the potential adverse effects of the Eurozone crisis on Britain’s exports and banking sector. Some ‘holds’ thought that Bank Rate was so far below the money market rates, which determined commercial banks’ lending costs, that it had little relevance to the wider economy. This meant that the gain from holding Bank Rate was mainly psychological. There was also a widespread concern that the supply side of the British economy was so arthritic that any fiscal or monetary stimulus would be largely dissipated in higher inflation rather than increased output.
The SMPC poll was carried out before the Chancellor’s 29th November Autumn Statement. However, committee members were given the opportunity to amend their contributions afterwards. A major concern, which was shared by many SMPC members, was the inconsistency between the official hardline approach to financial regulation and the need to bolster the supplies of money and credit. It was suggested that the main role of Quantitative Easing (QE) was to counter the adverse regulatory shocks that were being imposed on UK banks, both internationally and domestically, and that this represented a clear-cut policy inconsistency.
The SMPC itself is a group of independent economists who have gathered quarterly at the Institute of Economic Affairs (IEA) since July 1997. That it is the longest established such body in Britain and meets physically to discuss the issues involved distinguishes the SMPC from the similar exercises carried out by several publications. The next SMPC minutes will be published on Sunday 8 January.