SMPC votes Six / Three to Hold Bank Rate in November



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Brexit uncertainty means Shadow Monetary Policy Committee votes Six / Three to Hold Bank Rate in November

At its meeting on 16th October 2018, the Shadow Monetary Policy Committee (SMPC) elected, by a vote of six to three, to hold rates in November. The three favoured a 0.25% rise. All members had a bias to raise.

Advocates of holding rates noted the uncertainty about the Brexit deal (if any) that the UK and EU would do, and the economic implications thereof. They suggested there would be ample opportunity to raise rates later if matters evolved relatively smoothly. In the meantime, there was no urgency, since inflation is well under control and falling. Some also cited the weakness of broad money growth.

Advocates of raising rates noted that the UK economy continues to grow steadily, argued that concerns about the impact of Brexit should not deter policy-makers from continuing the process of monetary policy normalisation now, and that since interest rates remain far below any plausible estimate of their neutral level monetary policy continues to be highly accommodative. The burden of proof should be on those arguing against raising rates, rather than those advocating an increase.

The SMPC is a group of economists who have gathered quarterly at the IEA since July 1997, with a briefer e-mail poll 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.

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