At its latest, and tenth anniversary, meeting, the IEA’s Shadow Monetary Policy Committee (SMPC) voted to hold the official Bank Rate in August by a narrow five/four majority. Looking further ahead, there was an unusually wide spread of biases. Some SMPC members thought that Bank Rate was either at, or approaching, its peak while other members of the committee thought that a further rise, or rises, would be necessary, even if Bank Rate was raised by 0.25% to 6% on 2nd August.

The divergence of views held by the individual SMPC members mirrored an apparent similar lack of agreement on the MPC itself. The main causes seemed to depend: firstly, on how much weight should be attached to the continued rapid growth of broad money and credit; and, second, whether the slow growth of average earnings should be regarded as a more significant measure of the pressure of demand than the relatively strong figures being reported for the growth in national output and retail sales. The SMPC meeting was held on Wednesday 18 July, before the release of the ‘flash’ estimate of UK Gross Domestic Product (GDP) in 2007 Q2, on Friday 20 July. However, no SMPC member chose to alter his vote in the light of the new information.

Among the individual contributions, Tim Congdon questioned the consensus view that inflationary pressures would ease significantly in the short-term: he thought that higher food and oil prices were likely to offset the pre-announced reduction in domestic energy costs. Patrick Minford argued that the deregulation of the financial system meant that broad money and credit no longer had any significance, other than as indicators of the portfolio choices of individual economic agents. Peter Warburton emphasised the difference between the financial pressures on the household sector, and the far stronger position of companies, while John Greenwood preferred to wait and see the effect of the July rate increase before advocating another hike, even if he maintained a bias to rise.

Read the full report here.