With money growth stable, there is no reason to fiddle – inflation will fall naturally on its own.

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  The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) voted unanimously, 9-0, to hold Bank Rate.


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  SMPC members felt that current money growth levels were satisfactory and should be maintained.

The Shadow Monetary Policy Committee, a group of independent economists hosted by the free market think tank the Institute of Economic Affairs, that shadow the Bank of England, has called for interest rates to be held. This comes in the context of the Bank’s Monetary Policy Committee (MPC) decision about interest rates this week (Thursday July 30th).

Members noted that monetary growth has recently been very stable in the range 4-5% that should be consistent with the 2% inflation target. Other output shocks were likely to be temporary and upcoming shocks likely to be balanced. Fiscal and regulatory policy are highly suboptimal and likely to be depressing growth but looser monetary policy cannot make up for that. Indeed, if anything such supply-side damage and a lower sustainable growth rate might imply higher inflation and provide a rationale for tighter policy. Some members thought that could be a factor in recent above-target inflation but that for now, given how stable monetary growth has been recently compared with the volatility of the recent past, it was best to leave things unchanged.

Andrew Lilico, Chair of the Shadow Monetary Policy Committee and IEA Economics Fellow, said: “There will be an underlying tendency for GDP growth to accelerate and inflation to fall, if fiscal and regulatory policymakers can only, for a while, resist the temptation of harmful policy interventions. Monetary policy should be kept as it is.”