Sunday, April 05, 2009
No more rate cuts and monitor ‘nuclear option’ of quantitative easing closely, says shadow MPC
Posted by David Smith at 08:59 AM
Category: Independently-submitted research

In its latest e-mail poll (carried out in conjunction with the Sunday Times) the Shadow Monetary Policy Committee (SMPC) voted unambiguously to leave Britain’s Bank Rate unaltered at ½% on Thursday 9th April. All nine members of the shadow committee, which is run in association with the Institute of Economic Affairs (IEA), thought that UK Bank Rate was now at its effective lower limit.

However, there was no immediate case for a rate increase in the SMPC’s view, as long as the international and domestic economies were as weak as they were at present. The SMPC believed that the quantitative easing measures announced in the 18th March Monetary Policy Committee (MPC) Minutes were now the important monetary initiative.

The IEA’s shadow committee had advocated quantitative easing for several months before the UK authorities adopted this approach. However, the SMPC has consistently argued that the adoption of quantitative easing is a major decision that could engender serious collateral damage in the wrong circumstances.

One member even suggested that quantitative easing was the monetary-policy equivalent of deciding to employ a tactical nuclear weapon, in its scope for unintended adverse consequences. There was unanimity that the unconventional measures taken to increase monetary growth needed to be rapidly unwound, once they had done their work, to avoid a longer-term inflation problem.

The SMPC also expressed concern, ahead of the 22nd April Budget, that Britain was facing the worst run of fiscal deficits in its peacetime history. These would probably crowd out private activity in the short term and risked being monetised, in the longer run, leading to accelerating inflation.

Comment by Tim Congdon
(Founder Lombard Street Research)
Vote: Hold
Bias: Neutral

Mortgage approvals in January were £9.1bn, slightly up on December’s £8.9bn. The stock of mortgage lending has been virtually flat in recent months and that seems a reasonable prognosis for the immediate future. By contrast, banks’ unused credit facilities plunged in January when they were 11% down on a year earlier. The verdict has to be that – for the next few months – bank lending to the genuine private sector (i.e., excluding intermediate Other Financial Corporations (OFCs)) will be unchanged or down slightly.

However, the £75bn of gilt buybacks over three months implies a positive impact on M4 growth from this source of over 1% a month and perhaps as much as 1½% a month. The arithmetic is as follows. The stock of M4 broad money is roughly £1,750bn, if intermediate OFCs are cut out. If £25bn a month is bought from non-banks and there are no leakages, the extra M4 because of the gilt buybacks is getting on for 1½% a month. But there will be some leakages, because of – for example – some of the buybacks being from banks and the overseas sector.

As broad money growth of about 1% to 1½% a month looks about right to me in current circumstances (as ever, cutting out intermediate OFCs), my basic stance is ‘no change’. It will be interesting to see whether the corporate liquidity ratio (i.e., M4 money held by companies divided by their M4 borrowings) does recover, as I proposed in my Council for the Study of Financial Innovation (CSFI) pamphlet How to Stop the Recession. In qualification, the Bank of England and the Debt Management Office (DMO) really ought to coordinate quantitative easing with the DMO’s debt management ‘strategy’, if strategy it be. It is idiotic for the DMO to be selling a 2049 gilt issue (which will take money out of the non-bank private sector) at the same time that the Bank is buying gilts to increase the non-bank private sector’s bank deposits.

Comment by Andrew Lilico
(Europe Economics)
Vote: Hold
Bias: To hold

Interest rates are lower than necessary or appropriate at this point. But it would not be sensible to raise them at this stage. The focus now must be on quantitative easing measures and on the management of expectations. The outlook for the real economy continues to darken. Although the financial sector may at last be stabilising - and it really ought to stabilise, given the huge sums of taxpayer support provided, irrespective of whether that support was appropriate or well-directed - there have been many false dawns so far in the financial crisis and this may yet be another.

The reality where Britain’s real economy is concerned appear to me to be this. There will be contraction in GDP for the first three quarters of 2009. Then there will be either one or two quarters of tepid growth, largely as a lagged effect from interest rate cuts and fiscal loosening. But this growth will not be sustainable and will not be sustained, for three reasons:

• Firstly, fundamental real imbalances will not have fully corrected themselves. The clearest of these will be house prices, which will continue to fall at about 15% per year through 2010 and perhaps into the first part of 2011. Only once house prices have come close to their nadir will sustainable growth be possible.

• Second, there is currently a significant contraction in adjusted broad money. The annual rate of growth reported in the February inflation report was down to 3.8%, implying aggressive monthly contractions. Quantitative easing should eventually succeed in restoring some broad money growth, but even then the effect is likely to be deflationary. Current contraction will feed through into a negative real economy impact from mid-2010, and there is also now considerable uncertainty over the medium-term outlook for inflation, will all scenarios from significant deflation to double-figure inflation being plausible. This increases the inflation outlook risk, to add to the monetary contraction challenge.

• Finally, the Pre-Budget Report path for public expenditure would imply, on a recession only as bad as the early 1980s, public spending exceeding 50% of GDP in 2010-11. I hope and believe that politicians will face up to the implications of this soon, and that by early 2010 we will be seeing very significant fiscal tightening - with a short-term negative impact on growth. I thus anticipate a second dip of recession from the latter part of 2010 into the first part of 2011.

In the meantime, it would be useful to introduce a five-year average inflation (price-level) target, specifying an average annual inflation rate over the period of 3% to better manage the process of quantitative easing (which looks to me to be at about the right scale for now). Quantitative easing is subject to great uncertainty over the volume and timescale of its effects, and I believe that a price-level target would be much more appropriate in this scenario than an annual inflation target, allowing better expectations formation and a clearer exit strategy from the deflationary episode now underway.

Comment by Ruth Lea
(Arbuthnot Banking Group)
Vote: Hold
Bias: To hold

The Bank of England Governor Mervyn King’s latest appearance at the Treasury Select Committee (24th March 2009) elicited a great deal of comment in the media. The focus was on his gnomic, but nevertheless quite unambiguous statement, that the public finances were in such a parlous state that further discretionary public spending was unwise. “Given how big these [public sector] deficits are”, he said, “I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits.” Few surely, except for the man in Number 10 Downing Street who is wholly responsible for the wreckage of our public finances, would disagree. But we will have to wait until Budget Day, on 22nd April, to see if Mr King’s wise words have been heeded.

But it was another of Mr King’s comments that spooked the gilt-edged market. And that was that the Bank of England might not buy as much as £75bn of securities under the Asset Purchase Facility as initially announced. His explanation was not altogether convincing. He gave the impression that the Bank might buy “close to £75bn in three months…so that we would then be able to see the impact of that”. But monetary policy does not act with such a short lag. Indeed Mr King was at pains to explain to the Committee that monetary policy acts with considerable lags.

It may have been that the Bank, mindful of the worse than expected inflation numbers released on 24th March, is beginning to fret about inflation, despite collapsing demand. Rather than facing deflation the economy may be facing stagflation or worse. (There is in any case a great deal of confusion between deflation in the sense of consistently falling prices and a negative change in year-on-year RPI, which is distorted by the dramatically falling interest rates.) But given the parlous state of the real economy and the disastrous state of the public finances, the Bank really has only one choice in my view. And that is to press ahead vigorously with quantitative easing and keep interest rates low. But there is absolutely no point in cutting the Bank Rate further. In my view the last one was quite unnecessary.

Comment by Kent Matthews
(Cardiff Business School, Cardiff University)
Vote: Hold
Bias: Neutral

There is something very odd about one arm of government conducting an expansionary fiscal policy and financing it by selling government bonds to the non-bank public and another arm of the same government buying bonds from the non-bank public with a view to monetizing the existing stock of government debt. The belief that massively expansionary fiscal policy can somehow drag the economy out of recession is an illusion based on the mistaken view that the New Deal helped pull the US economy out of the Great Depression. Nothing could be further from the truth. In research conducted by Dan Benjamin and myself (Benjamin D and Matthews K, US and UK Unemployment between the Wars: a Doleful Story, Hobart Paperback 31, Institute of Economic Affairs, London, 1992) we found that the New Deal policy crowded out private sector jobs (for every ten jobs created by the New Deal, nine were lost from the private sector) and helped explain why unemployment remained stubbornly even by the end of the 1930s.

The current crisis cannot be solved by massive fiscal expansion. History has shown that expansion of the government sector has irreversible effects in terms of over-regulation, productivity and low growth. The central banks of the developed world took their collective eyes off the monetary ball through their fixation with inflation targeting. In theory inflation targeting would produce the same outcome as monetary targeting provided all markets including the traded sector worked properly. While goods price inflation remained low (partly because of the export policy of dollar zone economies), asset prices told a different story. An over-leveraged non-bank private sector is unlikely to expand demand even at zero interest rates unless there is even stronger quantitative easing. Bank rate should be held at its present ½% and the monetary authorities should persevere with their quantitative easing policy.

Comment by Gordon Pepper
(Lombard Street Research and Cass Business School)
Vote: Hold
Bias: To hold but the Bank must publish better statistics so that the effects of quantitative easing can be assessed

The Bank of England has at last adopted direct quantitative measures to boost the money supply. I have argued repeatedly in the past that in an atmosphere of financial crisis an economy can be flooded with bank reserves and money without inflation rising because banks do not have the confidence to use reserves and neither companies nor households have the confidence to spend the money but as soon as confidence returns bank reserves and the excess money in the economy must be mopped up to prevent inflation from rising. It is now vital to monitor what is happening to the money supply to ascertain whether the boost to it is inadequate, about right or excessive. There are two current problems with the data.

The first is distortions. M4 consists of money held by the private sector excluding inter-bank deposits. Transactions that are in effect within banking groups, that is, the deposits of what are now called ‘intermediate other financial corporations’ should also be excluded but they are not. More precisely, the private sector consists of ‘households’, ‘private non-financial corporations’ and ‘other financial corporations’. The last can be divided into traditional non-banks, such as life assurance companies and pension funds, and the ‘intermediate other financial corporations’. (In even more detail, the last category covers Special Purpose Vehicles, transfers between bank holding companies and their banking subsidiaries and Central Clearing Counterparties.) An adjustment should be made for all this and it is one that is most significant. According to the Bank’s latest Inflation Report in the fourth quarter of 2008 after making the adjustment M4’s percentage change on a year earlier was under 4% compared with over 15% for the unadjusted series. Quarterly data for the adjusted series are inadequate. The Bank is believed to have monthly estimates and should publish them.

Secondly, monthly data for the so called ‘counterparts’ of M4 (to be precise, the alternative presentation ones) ceased to be published last September. Before then the ‘causes’ of monetary growth could be ascertained, for example, the contributions of the budget deficit and the amount of gilts sold to the non-bank private sector by the Debt Management Office. The explanations advanced for stopping publication are cost cutting and the transfer of Northern Rock, etc., from the banking to the public sector. These are trivial explanations compared with the importance of knowing how the banking bail outs by the government are being financed. The counterparts should again be published.

Comment by Peter Spencer
(University of York)
Vote: Hold
Bias: Boldly pursue quantitative easing

At the March meeting the MPC voted unanimously to cut interest rates by ½% and commence £75bn worth of quantitative easing. Its plan to structure gilt purchases in the five to twenty-five year maturity range is clever since this makes it likely that it will purchase gilts from non-banks rather than banks. This will increase the money supply directly: to the extent that the Bank buys gilts from banks the policy would only be effective if banks lent out the new money. This is the textbook response, but seems unlikely in the current climate. This quantitative easing strategy is more akin to ‘underfunding’ than the quantitative easing strategy followed by Japan in the last decade. It seems to have been very effective, gilt and corporate bond yields have fallen back nicely since the MPC’s meeting. No wonder it is being emulated by the Federal Reserve.

The latest readout on the public finances confirms my long-held view that there is no room for manoeuvre on fiscal policy. The automatic stabilisers are working through with a vengeance given the high tax elasticity of financial sector output. The Prime Minister’s G20 ambitions must be brought down to earth – large European countries like Germany have shunned additional discretionary packages and some smaller countries like Ireland are already moving towards a discretionary tightening.

In this situation, it is vital that monetary policy supports the economy, with quantitative easing now the only option. The Bank needs to follow this policy through boldly to maintain the underlying growth of the money supply. Interest rates should be kept at or near their present level until the ‘green shoots’ begin to appear. The latest inflation figures suggest that the fall in the pound over the last eighteen months should keep the deflationary dogs from the door, but that threat remains as long as the economy remains mired in recession.

Comment by David B Smith
(University of Derby and Beacon Economic Forecasting)
Vote: Hold
Bias: Neutral in short term, but to tighten before the year end

When viewed from a short-term fire-fighting perspective, UK monetary policy is now arguably – if belatedly – operating on the right lines. The Bank of England have given up any pretence that the peashooter of marginal changes in Bank Rate is an effective weapon against the massed Panzers of the global financial meltdown and have instead chosen to employ the tactical nuclear weapon of quantitative easing. However, employing the nuclear option involves a serious risk of unintended collateral damage to one’s own side, even if it does achieve the immediate tactical objective of stabilising the economy in the very short run. Independent commentators also face the dilemma that there is an observational equivalence between two competing explanations of the current fiscal and monetary stance in the UK.

The first, political-economy, explanation is that a desperate government is doing all that it can to hold the economic show on the road until a putative May 2010 general election. The huge fiscal deficits that have resulted have been justified using crude Keynesian arguments but this is seen as just window dressing. Instead, the government is considered to be using large deficits to buy as many votes as possible in the short-term while leaving a fiscal train smash for the next government to inherit and future generations of taxpayers to finance. This political-economy analysis would then imply that the UK monetary authorities have become complicit in this endeavour by recklessly pumping money into the economy to stimulate demand over the next year or so, while ignoring the longer-term inflation risks. The fall of almost 19% in the sterling index over the past year suggests that some overseas investors are now taking this view. One danger associated with quantitative easing is that overseas holders of gilt-edged securities take advantage of the artificially high price of gilts to sell their sterling bonds at a profit before whipping their money out of the country. Under these circumstances, quantitative easing could unintentionally end up financing a run on the pound.

The second, more conventional, explanation is that the world economy is genuinely facing an adverse economic situation as bad as the early 1930s, and that extreme fiscal and monetary measures are required – and have been boldly implemented – to restore the situation. There is clearly some support for this view, and there are certainly similarities between the current UK monetary stance and the Bank of England’s very successful monetary decisions in the early 1930s, which meant that the contraction in UK national output was noticeably less than in other major countries, and was followed by a strong rebound from 1933 onwards. However, fiscal policy was much tighter in the inter-war period, and the state was spending a smaller proportion of national output, optimising the conditions for monetary policy to be effective. This is unlike the current situation where the UK is likely to experience the longest and largest run of budget deficits in its post-war history and general-government expenditure is likely to approach 55% of the factor-cost measure of national output, compared with the 28½% or so recorded when Keynes wrote his General Theory. The UK private sector will almost certainly suffer severe financial ‘crowding out’ from the government deficit. In addition, high rates of tax - and the prospect of further rises therein - are likely to reduce both the level and the growth of aggregate supply. Aggressively pumping nominal demand into an increasingly supply-constrained economy is a recipe for stagflation not recovery.

One would feel happier about the current UK monetary stance if it was easier for independent observers to monitor what was going on. Unfortunately, the Bank of England decided, at what seems to have been the worst possible moment, to suspend publication of the long-established table setting out the links between the budget deficit, funding policy, and M4 broad money growth (see: Bank of England Bankstats Table A3.2). At the same time, the Bank is emphasising an unpublished broad money series for M4 less the deposits of other financial corporations, which is not properly in the public domain. The published M4 broad money definition was 18.7% up on the year in February. However, its retail M2 component rose by a more modest 4.3%, while wholesale deposits went up by 44.3% over the same period. Stripping OFC deposits out of total M4 would appear to reduce its annual growth rate to 2.8%, on the assumption that the levels series are consistently measured over this period. In principle, it is not difficult to check whether OFC deposits should be included in the M4 broad money supply by estimating a demand for money equation for total M4 that includes the usual variables - such as income, the rate of interest paid on deposits, the bond yield and inflation – but also includes the stock of OFC deposits. If the coefficient on OFC deposits turned out to be unity, this would justify their total exclusion, while a coefficient between zero and unity would justify their partial exclusion, and one of zero would suggest that they should be included. There was a large literature dealing with the statistical analysis of such definitional questions in the 1960s and 1970s. It is surprising that the Bank of England has not published such a study – or the data required for others to do it – given that the main justification for adopting such a potentially dangerous policy as quantitative easing at a time of unprecedented budget deficits is to stop the M4 less OFC deposit definition from collapsing.

As far as the setting of Bank rate on 9th April is concerned, this has become a near trivial issue and is likely to remain so for the next few months. Practically, Bank Rate cannot go any lower; there are some modest early signs of recovery but the private sector remains very weak; and the monetary action in the short-term clearly lies with quantitative easing – or open-market operations as they were traditionally known. However, it is clearly unsatisfactory to have the Debt Management Office and the Bank both operating in the gilt-edged market but with different objectives. Serious thought should now be given to returning the responsibility for the sterling bond market to the Bank of England. This was a responsibility that the Bank had discharged from 1694 until the disastrous tri-partite dismemberment of the ’Old Lady of Threadneedle Street’ by ‘Gordon the Ripper’ in 1997. The extent to which the UK and international contractions appear to have been driven by de-stocking, which is an inherently finite process, suggests that the upturn could prove to be embarrassingly rapid once the economy does start to recover. A clearly spelled out exit strategy from the present quantitative easing should be published around the time of the 22nd April Budget, and monetary policy should probably start being tightened in the autumn of this year. If this does not happen, political-economy considerations will probably have triumphed over sound monetary management.

Comment by Peter Warburton
(Economic Perspectives Ltd)
Vote: Hold
Bias: To increase Bank Rate to 2% before the end of the year

The formal adoption of quantitative easing by the UK authorities on 5th March has transformed the outlook for the nominal economy. While there is still a great deal of concern over a deflationary outlook, the successful implementation of the Asset Purchase Programme (APP) should quickly lay such fears to rest. The major positive for the economy should be the normalisation of the flow of credit to the corporate sector for inventory management purposes. The restoration of production schedules to subdued, rather than desperate, levels should lessen the need for drastic employment reductions and should contribute to a near-term bounce in industrial activity. The major negative will be the early return of inflationary pressures emerging from the rebuilding of the supply chain and in the context of the sizeable depreciation of sterling in the past year.

The advantage of a gilt purchase programme is the speed with which it can be implemented. Spencer Dale, the Bank’s chief economist, announced in a speech on 27th March that the Bank has already purchased £13bn of gilts from investors. Since the MPC’s announcement, gilt yields have fallen by around 50 basis points at the horizons which the bank is making purchases. However, the impact of the UK’s first undersubscribed gilt auction since 1995 has damaged the perception that quantitative easing will have a lasting beneficial impact on gilt yields.

National accounts data released on 27th March confirmed that Gross Domestic Product at market prices fell by 1.5% in the second half of 2008 and Gross National Income dropped by 3.2% in the same period. Having taken the difficult decision to abandon caution and throw full weight behind an anti-deflation strategy, it will be important to keep the momentum going over the next six months or so. This will almost certainly involve the doubling-up of the APP to £150bn and possibly a larger target. An important argument for ‘shock-and-awe’ tactics is the unknown requirement of ‘Other’ Financial Corporations (OFCs) for replacement funding.

OFCs have an urgent need to replace international and foreign currency funding sources with domestic sterling sources and will require increasing access to loans from UK monetary financial institutions (MFIs). The forced repatriation of OFCs international funding has absorbed the lion’s share of MFIs lending capacity since the crisis erupted in August 2007. The Bank of England’s APP should be expanded, extended and refocused to recognise this reality. Otherwise, there is a danger that the banks will use up their additional lending capacity with OFC loans rather than supporting real economic activity by lending to private non-financial corporations and unincorporated businesses.

The primary mechanism for revitalising aggregate nominal spending in the economy is the provision of a significant quantitative boost to the broad money supply (M4). Bank of England hopes that small scale interventions will improve market functioning via a ‘demonstration effect’ are likely to be disappointed. One of the side effects of cutting Bank Rate from 5% to ½% has been to decimate the effect of interest accumulations on bank deposits. The quantitative expansion of the money supply will need to compensate for the loss of interest credited as a source of new bank deposits.

National accounts data reveal a £4.2bn decline in inventories for the fourth quarter of last year. Manufacturing industries were responsible for destocking of £1.5bn in 2008 Q4 following £0.6bn in Q3. The retail sector shed £1.15bn in 2008 Q4 and other industries, £2.18bn. The sharpness of these declines indicates that production and distribution activity has been pitched well below the level of current sales. The prospect of a relatively short and severe episode of inventory liquidation raises hopes of a partial improvement in economic activity during the second half of 2009, but also an early rebound in inflation.

Inflation figures for February delivered a wake-up call to those of a deflationary persuasion. Headline CPI inflation – the basis of the formal inflation target – was expected by the forecasting consensus to moderate from 3% in January to 2.6% in February, but it rose instead to 3.2%, forcing another ‘Dear Alistair’ letter from the governor of the Bank of England. The tabloids were primed with their deflation banner headlines as the RPI inflation rate was tipped to fall from 0.1% to -0.7% under the weight of falling mortgage interest payments. It fell, but only to a zero rate. To add to the ‘Shock, horror’, annual inflation rates rose in almost every category of spending on goods and services provided in the context of domestic competitive markets. Household food inflation rose from 9.9% to 11.3%; household goods from 4.2% to 5.0%; household services from 1.5% to 2.1%; personal goods and services from 2.5% to 3.2%; catering from 3.6% to 3.9%. Deflation in clothing and footwear lessened from 7.1% to 6.4% and in motoring expenditures (ex-petrol and oil), from 6.1% to 5.4%. There may well be some softer inflation data over the next six months, but under the cover of a favourable base for the annual comparison, underlying inflationary pressures are building.

If the Bank of England’s MPC is taking the inflation target seriously, then the reign of ½% Bank Rate should be extremely brief. Within three months, it should be clear that the deflationary emergency is over and that a restoration of Bank Rate to around 2% should be accomplished before the end of the year. My vote is to hold interest rates at their present level, but to plot a course for an increase back to 2% by December.

Comment by Trevor Williams
(Lloyds TSB Corporate Markets)
Vote: Hold
Bias: Neutral, until economy shows signs of sustained recovery, then tighten

The UK economy is continuing to weaken sharply, and the global backdrop is deteriorating equally rapidly. The trough of the global and UK economic downturns is still some way off. Meanwhile, the financial market crisis continues to rumble on, with the latest efforts to stabilise credit markets not yet showing consistently positive outcomes and financial markets still exhibiting extreme volatility. Efforts to take the bad debts – or ‘toxic assets’ - off financial firms’ balance sheets have become more robust recently, though they have not yet resulted in any near term resolution of the crisis. However, this crisis is one that does not have a single magical solution – otherwise it would have implemented already. The crisis was also a long time in the making and the solution will take time. It does rather look as if the solution will involve a range of initiatives pulling in the same direction.

With this economic background, quantitative easing is an option the authorities had little choice but to embark upon. The amounts being spent are certainly sizeable enough to give them a chance of success, that is, to boost M4 money supply growth so as to provide enough liquidity in the economy to mitigate corporate and household bankruptcy and to help improve liquidity for those that have the appetite to borrow and to lend. It has already brought gilt yields lower, but household savings rates are rising, up to 4.8% in 2008 Q4 from 1.7% in the quarter before. Companies have also put more aside, with the net financial balance rising to £8bn in 2008 Q4 from £5.9bn in Q3, as they cut costs via lower inventories, output and employment and slower growth in pay.

The £100bn to be spent on purchasing gilts is some one-third of the stock of conventional gilts. The £150bn total of quantitative easing, of which £50bn is earmarked to purchase commercial bills, is 9.6% of last year’s gross domestic product in the UK, which was £1.44 trillion. It also accounts for 7.5% of total M4 outstanding at end-January 2009, which was just under £2 trillion. Will this amount of monetary injection be enough? Time will tell.

The Bank of England is now in new territory, with a zero interest rate policy and quantitative easing in place as its reaction to the financial and economic crisis that is in full swing. It may have to spend more on quantitative easing than it has so far, although it is still too early to say if it will have to. But the Bank has said, quite rightly, that it is ready to spend more. However, the proviso for all this is that it will have to reverse the interest rate cuts and quantitative easing once a sustainable economic recovery is underway, in a manner that does not undermine recovery but squashes future inflation. On current trends, however, this point does not look like it will be next year, with no return to 2% plus trend rates of growth until second half 2011 at the earliest. In the near term, monetary policy will remain very loose.

What is the SMPC?

The Shadow Monetary Policy Committee (SMPC) is a group of independent economists drawn from academia, the City and elsewhere, which meets physically for two hours once a quarter at the Institute for Economic Affairs (IEA) in Westminster, to discuss the state of the international and British economies, monitor the Bank of England’s interest rate decisions, and to make rate recommendations of its own. The inaugural meeting of the SMPC was held in July 1997, and the Committee has met regularly since then. The present note summarises the results of the latest monthly poll, conducted by the SMPC in conjunction with the Sunday Times newspaper.

SMPC membership

The Secretary of the SMPC is Kent Matthews of Cardiff Business School, Cardiff University, and its Chairman is David B Smith (University of Derby and Beacon Economic Forecasting). Other current members of the Committee include: Roger Bootle (Deloitte and Capital Economics Ltd), Tim Congdon (Founder, Lombard Street Research), John Greenwood (Invesco Asset Management), Ruth Lea (Arbuthnot Banking Group), Andrew Lilico (Europe Economics), Patrick Minford (Cardiff Business School, Cardiff University), Gordon Pepper (Lombard Street Research and Cass Business School), Peter Spencer (University of York), Peter Warburton (Economic Perspectives Ltd), Mike Wickens (University of York and Cardiff Business School) and Trevor Williams (Lloyds TSB Corporate Markets). Philip Booth (Cass Business School and IEA) is technically a non-voting IEA observer but is awarded a vote on occasion to ensure that nine votes are cast.