SMPC take vote on Bank Rate raise in July
On a vote of 8 to 1, the Shadow Monetary Policy Committee voted to raise Bank Rate in August.
Seven members voted to raise the Base rate by ¼%. One member voted to raise by ½%. One member voted to hold rates. By convention, there was a decision to raise rates by ¼%.
There was unanimity among those who attended the meeting that Quantitative Tightening should operate at £20 bn a month, with the objective of restoring 10-year yields to the positive region.
There was general consensus amongst those who voted to hike Bank Rate that the normalisation of monetary policy was critical; the longer rates remain where they are, the greater the distortions become.
The sole dissenter noted he supported normalising interest rates and monetary policy, but was not convinced that the time is right for a rise in the Base Rate. He said that he wanted to signal to banking markets that the period of cheap liquidity was coming to an end and to normalise monetary policy by operating on the long-term rate through Quantitative Tightening.
There were varying perspectives over the impact that Brexit will have on the growth trajectory for the British economy.
Some argued that a ‘no deal’ Brexit scenario would not have the ‘doomsday’ impact many are predicting, as the UK could fall back on World Trade Organisation rules, and industry can learn the new rules and adjust to them quickly.
Others took a different view, noting that uncertainty does have an affect on investment spending – though it was not thought that there would be a collapse in investment.
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.
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