Following its latest gathering, the Shadow Monetary Policy Committee (SMPC) voted by a narrow margin of five votes to four that Bank Rate should be held at its current ½% in July. All four SMPC hawks wanted to raise Bank Rate by ½% to 1%. The lack of a ‘plus ¼%’ middle ground between the holds and the advocates of a ½% increase reflected divergent views on a number of issues. One division concerned whether the sluggish growth of national output was a pure ‘demand-side’ phenomenon or whether it reflected a withdrawal of aggregate supply caused by the unprecedented peacetime increases in the burdens of UK government spending, borrowing and taxation during the 21st Century. Another divide concerned how far Britain should be regarded as a small, open economy – in which case downward movements in the exchange rate should eventually become fully reflected in domestic prices – and how far it should be regarded as a large metropolitan economy, where the output gap could be regarded as the main influence on inflation.
Other important issues on which views differed included how much reliance could be placed on the official statistics and whether the sluggishness of broad money and credit meant that there was no long-term inflation risk. Some SMPC members worried about the threat to