Embargoed for 00.01 hours, Thursday 31st July 2003
Shadow MPC Divided on Rate Cut Decision
The Shadow Monetary Policy Committee (SMPC), a group of distinguished economists that meets quarterly at the Institute of Economic Affairs, fears that the recent rate cut on 10th July may have been a mistake but the uncertainties created by the effect of VAT fraud on official economic data and the unclear world background led to opinions being divided on the right course of action.
At their meeting on 17th July, the SMPC expressed reservations about the appropriateness of the 10th July UK base rate cut, with four members considering that it was a mistake - while three felt that it had been the correct course of action. One reason that the Committee was unable to come to a firmer conclusion was the huge impact of the VAT fraud, revealed on 9 July, on the balance of payments figures and national accounts. The extent of the distortions