Shadow MPC votes for hold

A MAJORITY of City A.M.’s Shadow Monetary Policy Committee (MPC) think that interest rates and quantitative easing (QE) should remain unchanged this month, ahead of the Bank of England’s decision scheduled for midday today.

Eight members voted for a pause with many believing that now is the time for the MPC to take stock after ending its programme of asset purchases only last month. Only Henderson’s Simon Ward has called for an interest rate hike of 25 basis points on the basis that emergency policy is no longer needed as the recovery gains momentum and inflation expectations gain momentum.

A number of members of the Shadow MPC including Lloyds’ Trevor Williams and Lombard Street Research’s Jamie Dannhauser remain biased towards more QE if money growth fails to pick up and the economy struggles to grow strongly.

Data earlier this week showed that growth in the broad money supply (M4) only increased slightly in January.

The Bank’s MPC has been keen to point out since the February meeting that it has only paused QE rather than definitively suspended it.

However, an upward revision to fourth quarter GDP data to 0.3 per cent growth as a result of a better-than-expected industrial production data combined with this week’s strong purchasing managers’ indices may see some members feel more confident about the recovery. How the committee members view inflation will also be vital to their decision. Any signs that inflation will remain strong for longer than expected or that the inflation target is being undermined could prompt a swift reversal.

With a range of opinions among MPC members, the decision may be split – details will be given when the minutes are published on 17 March. Henderson’s Simon Ward expects that as many as four members will vote to tighten policy this week.