SMPC votes to raise Bank Rate in March
An email poll of the Shadow Monetary Policy Committee (SMPC) in March produced a vote to raise interest rates by nine to nil. All nine members voted for ¼% increase to a Bank rate of 0.75%. The bias of eight members was for further tightening and one for a neutral stance.
All members saw the need for a rate rise to give room for cuts later on, to make up for the delay in raising rates and to counter the potential of future inflation. Despite a weaker performance than the EU the world economy, the UK economy still managed to expand by 1.8% last year. This year, economic growth of around 1½% is expected by the consensus of independent forecasters and by the Treasury. Although growing slower than in the year before, with a potential growth rate of under 2% the UK may have used up its spare capacity in the period of continued expansion since 2010. This opens it up to inflation risk, even as growth slows to around the 1½% a year mark. With the widespread view on the committee that interest rates are some 1% or so below ‘normal’ – further rate rises can be justified.
One member may want a pause in rate rises if signs of consumer price inflation slowing to the 2% target combine with muted wage inflation pressure and a slowing economy to suggest a diminution of price inflation risk in the years ahead.