Monetary Policy

Shadow Monetary Policy Committee votes unanimously to Hold Bank Rate in November and rejects proposals for negative interest rates
In its meeting of 13th October 2020, held by video-conference due to ongoing COVID-19 restrictions, the Shadow Monetary Policy Committee (SMPC) elected, by a vote of nine to zero, to hold rates in August. One member favoured extending Quantitative Easing (QE) before the end of this year. Three favoured reducing QE once recovery is established.

Current circumstances are especially uncertain, given the apparent commencement of a Second Wave of coronavirus infections and subsequent extension of “Tiering” restrictions in the UK and introduction of national lockdowns in other European countries. There was some debate on the committee regarding the implications of this. Some members felt that concerns about unemployment rising well above 10% have been exaggerated and that a peak below 7% is more plausible. Others noted that sectors most hit by lockdowns and other restrictions tend naturally to be those that are more labour-intensive and questioned the economic meaningfulness of a distinction between “furlough” and unemployment.

There was general agreement on the committee that negative interest rates have no clear rationale at this time. Aside from the general point that the current crisis is a paradigmatic supply shock and especially unsuited to offsetting by monetary policy, there has in any event been a large recent rise in the money stock. Eventually that rise might create inflationary pressure but they are best addressed at a later stage.

The above debates notwithstanding, however, the Committee agreed that policy should not change.

The SMPC is a group of economists who have gathered quarterly at the IEA since July 1997, with a briefer e-mail poll being released in the intermediate months when the minutes of the quarterly gathering are not available. 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 elsewhere. To ensure that nine votes are cast each month, it carries a pool of ‘spare’ members. This can lead to changes in the aggregate vote, depending on who contributed to a particular poll. As a result, the nine independent and named analyses should be regarded as more significant than the exact overall vote.

For Further Information on the Content Please Contact:

Andrew Lilico       + 44 (0) 7886 711735  [email protected]

Trevor Williams   + 44 (0) 7841 497791  [email protected]

Julian Jessop    + 44 (0) 20 7798 60192 [email protected]


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.

Current SMPC membership

The Secretary of the SMPC is Kent Matthews of Cardiff Business School, Cardiff University, and its Rotating Chairman is Andrew Lilico (Europe Economics) and Trevor Williams (TW Consultancy, University of Derby, St Mary’s University). Other members of the Committee include: Philip Booth (St Mary’s University, Twickenham), Roger Bootle (Capital Economics Ltd), Tim Congdon (Institute of International Monetary Research), Jamie Dannhauser (Ruffer LLP), John Greenwood (Invesco Asset Management), Julian Jessop (Independent Economist), Graeme Leach (Macronomics), Patrick Minford (Cardiff Business School, Cardiff University), Akos Valentinyi (Manchester University), Peter Warburton (Economic Perspectives Ltd), Mike Wickens (University of York and Cardiff Business School), Juan Castaneda (Institute of International Monetary Research and University of Buckingham).

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