In its meeting of 12^th January 2021, 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 February. There was unanimity that the announced programme of additional QE was a mistake, and no further QE should be undertaken. There was a majority view that QE should be reversed once the recovery takes place.

There was a widespread view on the Committee that the outlook in the post-COVID period is very growth-positive and that there is potential for this to overspill into inflation. It was noted that this was true from all standard perspectives: monetary (with unsustainably rapid monetary growth, including internationally), Keynesian (with very large fiscal stimulus) and supply-side (with the post-COVID period combining pent-up demand with limits on the supply-side’s ability to expand rapidly enough to accommodate it). There was concern that excessive pessimism from policymakers regarding the post-COVID period, though understandable in itself, might now be mis-timed if vaccination programmes are as successful as hoped.

Without disputing the above points, other members noted that, even in the immediate post-COVID period but certainly further ahead, there are challenges with debt overhangs for both the public and private sectors and the risk of discontinuities and defaults in the recovery period.

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