The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) has voted by a narrow majority (four members to five) against an immediate increase in the Bank Rate from ½%.
There was a near unanimous view on the SMPC that there remained a serious policy inconsistency between financial regulators’ desire to gold-plate capital requirements and other restrictions on the size of commercial bank balance sheets and the official desire to get credit flowing again, especially to smaller enterprises. Some committee members thought that easing the regulatory push, while raising the Bank Rate to a more neutral level, would represent a more coherent policy stance and bring increased credit growth and private-sector activity. The two big unknowns identified by the SMPC were the likely consequences of developments in the Eurozone and how far to trust the weak official growth numbers, as compared with the more buoyant labour market and survey data.
There was further debate on expanding quantitative easing (QE), with the overwhelming majority voting for leaving the QE stock where it is. Two members voted for a further injection of QE, and one member argued for a phased programme of withdrawal. All members agreed that if the Bank of England found itself in a lender of last resort situation – perhaps as a result of Eurozone events - then QE should be used aggressively.
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 exactly 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. As a consequence, the nine independent analyses should be regarded as more significant than the precise vote. The next SMPC gathering will be held on Tuesday 10th July, with its minutes to be published on Sunday 29th July. The ne