It was widely agreed that there is no discernible negative impact from the Brexit vote on the UK economy so far, and that the August interest rate cut was an error. The advocating a rise note that GDP growth is solid, unemployment is low, monetary growth is rapid, sterling is weak and inflation is set to go above target. What reason could the Bank of England have for allowing inflation to overshoot the target when it is so straightforwardly within its power to prevent that? Two members felt that the need for pre-emptive action implied an immediate 0.5% rise. Others felt that a steadier 0.25% would do to begin with, though a number favoured further 0.25% increments at other meetings through 2017.
Those favouring a hold offered a range of arguments in favour of their view. Some were concerned that a rise at this stage might reverse what they regard as a wholly benign and overdue depreciation in sterling. Others felt that the economy has been mired for so long that it is worth “running it hot” for a period to see whether that boosts a rise in the underlying potential output growth rate.
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 ‘spares’ 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. The next SMPC poll will be released on the Sunday of 30th April 2017.