Monetary Policy

IEA’s SMPC endorse new Bank of England Governor


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IEA response to the Autumn Statement

SMPC decides by six votes to three that Bank Rate should be held at ½%

The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) decided by six votes to three that Bank Rate should be held at ½% on Thursday 6th December.

The SMPC poll was largely completed before the announcement that Mark Carney would be the next Governor of the Bank of England. To the extent that SMPC members expressed a view of the appointment, it was that this was an excellent choice that sent a clear signal about the openness of the UK to global talent. The contrast between the strong Canadian economy and the weak British one helps explain Mr Osborne’s decision. However, Canada has been helped by a noticeably less-competitive and internationally-open banking system and a far stronger fiscal background than Britain experiences. There was some concern that the new Governor might prove an unduly hard-line financial regulator in a way that was not appropriate at the current depressed point in the cycle.

Two dissenters wanted to raise Bank Rate by ¼% immediately, while another desired an increase of ½%. Most SMPC members thought that there should be no additional Quantitative Easing (QE) for the time being. One reason was that Mr Osborne’s 9th November decision to transfer £37bn of gilt coupon payments from the Asset Purchase Facility (APF) to the Exchequer represented a de facto monetary easing. Several SMPC members expressed concern that the announcement blurred the distinction between fiscal and monetary policy, risked politicising the latter and brought forward revenues into fiscal 2012-13 at the cost of increased borrowing in later years.

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 15th January 2013 and its minutes will be published on Sunday 3rd February. The next two SMPC e-mail polls will be released on the Sundays of 6th January and 3rd March, respectively.

Notes to editors:

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What is the SMPC?

The Shadow Monetary Policy Committee (SMPC) is a group of independent economists drawn from academia, the City and elsewhere, which meets physically for two hours once a quarter at the Institute for Economic Affairs (IEA) in Westminster, to discuss the state of the international and British economies, monitor the Bank of England’s interest rate decisions, and to make rate recommendations of its own. The inaugural meeting of the SMPC was held in July 1997, and the Committee has met regularly since then. The present note summarises the results of the latest monthly poll, conducted by the SMPC in conjunction with the Sunday Times newspaper.

Current SMPC membership:

The Secretary of the SMPC is Kent Matthews of Cardiff Business School, Cardiff University, and its Chairman is David B Smith (University of Derby and Beacon Economic Forecasting). Other members of the Committee include: Roger Bootle (Capital Economics Ltd), Tim Congdon (International Monetary Research Ltd.), Jamie Dannhauser (Lombard Street Research), Anthony J Evans (ESCP Europe Business School), John Greenwood (Invesco Asset Management), Andrew Lilico (Europe Economics), Patrick Minford (Cardiff Business School, Cardiff University), Akos Valentinyi (Cardiff Business School, Cardiff University), Peter Warburton (Economic Perspectives Ltd), Mike Wickens (University of York and Cardiff Business School) and Trevor Williams (Lloyds Bank Wholesale Markets). Philip Booth (Cass Business School and IEA) is technically a non-voting IEA observer but is awarded a vote on occasion to ensure that exactly nine votes are always cast.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.