In its most recent poll, the Shadow Monetary Policy Committee (SMPC) decided by eight votes to one that UK Bank Rate should be held at ½% when the official rate setters meet on Thursday 8th March. The sole dissenter on the shadow committee wanted to raise Bank Rate by ¼%. This was mainly to provide a clear signal about the future anti-inflationary resolve of the monetary authority. The predominant reason why most SMPC members voted to hold the official interest rate in March was their continuing concern about the uncertainties arising from the situation in the euro-zone together with the view that there remained ample spare resources in the British economy, despite some tentative and welcome signs that the first green shoots of recovery were starting to emerge.
Two things that the SMPC agreed on were that a Greek default was largely discounted in the financial markets and that there was a serious inconsistency in British monetary policy between hard-line financial regulation and the need to shore up the supplies of money and credit to sustain activity and the tax base. The SMPC does not normally discuss fiscal issues, unless they have monetary consequences. However, the general view was that the November 2011 projections for public borrowing in 2011-12 would be achieved, but that there would still only be cosmetic tax cuts in the 21st March Budget. This was despite the view of some SMPC members that many specific taxes were on the wrong side of their ‘micro-Laffer’ curves, so that well-designed tax cuts would reduce public borrowing if Mr. Osborne were bold enough to try them.
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 1st April.