Following its latest gathering, the Shadow Monetary Policy Committee (SMPC) voted by six votes to three to leave Bank Rate unchanged at 0.5% when the Bank of England’s rate setters assemble on Thursday 13th January. All three dissenting SMPC members wanted Bank Rate to be raised to 1% in January. The six SMPC members who wished to see Bank Rate held unchanged did so for a variety of considerations. One was the continued de-leveraging of the banking system, which meant that the growth of broad money and credit was likely to remain sluggish. Another was the uncertain outlook for activity in Britain’s traditional mature-economy trading partners. However, there was also a counter view that buoyant Asian activity meant that the aggregate global economy was closer to overheating than depression. The third main reason for wanting to hold Bank Rate was concern that the government’s fiscal tightening would reduce activity as it took effect during the course of 2011.
Several factors explained why three SMPC members wanted a higher Bank Rate. The main worry was that the Bank risked losing credibility if it did not react to sustained above-target increases in the consumer price index (CPI) and ignored the extent to which CPI inflation was running below the more popular retail price index (RPI).
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 6th February.