Shadow Monetary Policy Committee votes eight to one to raise Bank Rate in May


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SMPC take poll on Bank rate raise in May
Ending six months of unanimity for rate hikes, the Shadow Monetary Policy Committee (SMPC) voted at its April meeting to raise Bank rate in May by eight votes to one. Six of the nine wanted to see a rise of ¼%, two an increase of ½% and one a hold. Seven members had a bias to tighten, and two had a neutral bias. Of the nine, two wanted to see QE start to be reversed as soon as possible. Financial market signals about the pricing of risk and investor sentiment were being lost owing to the central bank’s significant share of the UK’s fixed income market.

The eight that wanted to see higher interest did so in spite of agreeing that the pace of global economic growth was slowing and that inflation pressure was easing in the UK. But they felt that the UK economy’s growth rate and its positive, albeit slower, trajectory justified further rate hikes on a
number of grounds. One was that rates had been too low for too long with adverse economic effects.A second was that, though easing, price inflation remained above target and lower inflation was giving real consumer incomes a boost. Third, that the drag from Brexit uncertainty was fading and that the economy would consequently benefit over the next few months. Finally, efforts to return to interest rate normality must be maintained as lower rates will be required if the economy falters in future and for that to happen, they need to be higher in the short term.

The sole dissenter felt that the MPC’s February Inflation Report target for consumer price inflation in Q1 has been undershot and that its economic growth projections for the quarter were too optimistic. With inflation easing and the economy slowing sharply there was little to justify a rate rise at this time. Indeed, a rate rise could damage the economy for little gain.

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:
Trevor Williams + 44 (0) 771 0986 691 [email protected]
Andrew Lilico + 44 (0) 20 7269 2644 [email protected]
Julian Jessop + 44 (0) 20 7798 60192 [email protected]

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