Monetary Policy

SMPC Votes Unanimously for No Change in Interest Rates


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The latest edition of the iea's journal, Economic Affairs, contains proposals by a number of tax experts for a simplification of the UK tax system and a reduction in the tax burden.

Considerable Concern for the Supply Side of the Economy Expressed by Members

https://iea.org.uk/wp-content/uploads/2016/07/upldrelease42pdf.pdf
Members of the Shadow Monetary Policy Committee, a group of distinguished economists that meets quarterly at the Institute of Economic Affairs, voted for interest rates to remain unchanged at their meeting on Wednesday 16th April. The Committee noted that demand was slowing, particularly in the private sector. Unfortunately, supply-side capacity was shrinking along with demand due to the significant transfer of resources from the private to the public sector and increased regulation of the private sector. Whilst a medium-term slowdown of economic growth was more than likely, this was not good news for inflation, as the slowdown would reflect changes in the supply side of the economy.

There was considerable uncertainty surrounding the prospects for the world economy. Whilst growth in the Euro zone is unexciting, the world economy is expected to grow at a rate between 2 and 2.5%. However, the effects of the SARS virus and any impact of the aftermath of the war with Iraq is difficult to determine at the current time. Monetary growth is not weak and inflation is currently above target although it is expected to move back towards target.

The Committee believed that the Bank of England may well cut rates over the next quarter but that it would be wrong to do so unless there is a severe economic shock created by events such as SARS. If the Bank did cut interest rates, without such events, they would be responding to low growth caused by poor supply–side conditions rather than to the potential for above–target inflation.

The minutes of the meeting are available here.

The Shadow Monetary Policy Committee, which has shadowed the MPC since its creation, has no relationship with the recently formed Times Shadow Monetary Policy Committee



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