In January 2020, the Shadow Monetary Policy Committee (SMPC) voted by six votes to three to keep Bank rate at 0.75%. But six of those who voted had a bias to raise rates in the next few months.

The majority view to keep rates at 0.75% was based on signs that the UK economy faltered towards the end of 2019. Despite some more recent data suggesting that the economy could pick up in early 2020, the majority opinion was to wait and see whether the acceleration materialised. Concern persisted about high levels of uncertainty, partly related to the departure of the UK from the EU on 31st January and the subsequent effects on business confidence of the ebb and flow of negotiations about a free trade agreement (FTA).

A further complication is the UK Budget, the first for Chancellor Sajid Javid, set for 11th March, which is widely expected to see some significant fiscal easing. However, it may be wise to know the extent of that fiscal loosening before reacting by raising rates. Therefore, the majority voted to keep rates on hold.

The three dissenting members thought that there should be no further delay and rates should be increased by ¼% to 1%. One argument is that the UK’s labour market data show that the economy is at full employment, as reflected in rising real pay. Taken with the removal of political uncertainty following the General Election, and of uncertainty about the timing of Brexit, they feel a rate increase is warranted. Furthermore, two dissenters argued that a rate rise is justified because rates had been too low for too long, promoting unproductive investment and resulting in low productivity and weak growth.

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