Monetary Policy

Institute of Economic Affairs Shadow MPC says “no to more QE”


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Housing and Planning

Motion to raise interest rates narrowly defeated

Following its most recent quarterly gathering, held at the Institute of Economic Affairs (IEA) on 17th April, the Shadow Monetary Policy Committee (SMPC) decided by a narrow margin of five votes to four that UK Bank Rate should be held at ½% on Thursday 10th May. Three members of the shadow committee wanted to raise Bank Rate by ¼%, while a fourth argued for an increase of ½%. This result reflected the increasingly ‘hawkish’ trend in the SMPC vote that has appeared during recent months, while still leaving a narrow majority in favour of holding rates. All the IEA shadow committee members recognised the uncertainties attached to UK economic developments, events in the Eurozone, and the need to restore financial balance sheets, and were well aware that a flexible and pragmatic response to events was the only sensible course.

Most SMPC members thought that there should be no additional QE in the short term, although there was a divergence of view with respect to the appropriate policy subsequently. Some members believed that further QE tranches would be required because of the weakness of the economy, others wanted to hold the existing stock, and one member thought that QE now needed to be unwound to avoid longer-term inflation risks. The SMPC poll was finalised after the disappointing March inflation figure, which was released on the morning of the gathering, but before the publication of the negative first quarter real GDP growth figure on 25th April. However, the SMPC had already concluded on 17th April that the official data was no longer fit for purpose where the national accounts were concerned.

The SMPC has gathered quarterly at the IEA since July 1997. That it was the first such group in Britain, and that it assembles regularly to debate the deeper 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. The nine independent SMPC analyses are correspondingly more significant than the precise vote. The latter is not intended as a forecast of what the Bank of England will do but as a declaration of what the SMPC believes it should do. The following two SMPC e-mail polls will be released on the Sundays of 3rd June and 1st July, respectively. The next SMPC meeting will be held on Tuesday 10th July and its minutes will be published on Sunday 29th July.

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Notes to editors

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), John Greenwood (Invesco Asset Management), Ruth Lea (Arbuthnot Banking Group), 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 TSB Corporate 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.