In its most recent e-mail poll, completed on 25th September, the Shadow Monetary Policy Committee (SMPC) decided by six votes to three that Britain’s Bank Rate should be held at ½% on Thursday 4th October. Two of the dissenters wanted to raise Bank Rate by ½% immediately, while another desired an increase of ¼%. There was a further divergence with respect to quantitative easing (QE). Most SMPC members thought that QE should be held at its present level. However, there was one who wanted a phased withdrawal on counter-inflationary grounds, while another believed that additional monetary stimulus would be needed if the recent improvement in financial-market sentiment proved transitory. The Draghi proposals for the Eurozone, which had led to the improved market sentiment, were believed to have bought time but not, necessarily, to have produced a permanent solution.
In addition, there was a body of opinion on the SMPC that the longer-term risks associated with current monetary policies were increasing and could lead to a damaging upwards ‘gear shift’ in inflationary expectations. The US Federal Reserve’s QEIII proposals were a particular concern because of their open-ended nature. There were also reservations as to whether the European Central Bank’s theoretically unlimited commitment to purchase peripheral Eurozone debt could be anything more than a gigantic bluff. Most of the sixteen German Federal States were themselves net fiscal recipients. This meant that the Eurozone’s public debt stock was effectively being underwritten by Bavaria and, to a lesser extent, Baden-Württemberg, not Germany.
The SMPC is a group of economists who have 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 issues involved, distinguishes the SMPC from the similar exercises carried out by a number of publications. Because the committee casts precisely 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. The nine independent analyses correspondingly should be regarded as more significant than the exact vote. The next SMPC gathering will be held on Tuesday 16th October and its minutes will be published on Sunday 4th November. The next two SMPC e-mail polls will be released on the Sundays of 2nd December 2012 and 6th January 2013, respectively.