Shadow Monetary Policy Committee Votes to Cut Bank Rate Amid Economic Slowdown

Strategic Insights -

The Shadow Monetary Policy Committee (SMPC), a group of independent economists, voted to cut the Bank rate from 4.25% to 4% in its third quarterly hybrid meeting of 2025, citing weakening economic growth and rising unemployment. The majority of the committee, with a four-to-three vote, agreed that easing monetary policy would help prevent further deterioration in the economy. A key concern for the committee was the potential impact of tariffs on GDP growth, as well as the modest risk of an upsurge in inflation pressure.

Key Takeaways:

  • The SMPC voted to cut the Bank rate from 4.25% to 4% in its third quarterly hybrid meeting of 2025, due to weakening economic growth and rising unemployment.
  • Four members voted for a 25-basis-point cut, three members for a 50-basis-point cut, and two members voted to hold rates steady.
  • The majority opinion was for keeping rates at 4% and assessing economic conditions from meeting to meeting and adopting a 'wait and see' approach.
  • Two members expressed a desire for further easing based on worries that a 4% Bank rate, given forecasts of 1% GDP growth, meant that monetary policy was still too tight.
  • Members emphasized the desirability for M4x growth to remain within a range of 2 to 6% and advocated for the Bank of England to set intermediate monetary targets that track M4 growth alongside inflation and GDP.
  • Most members advocate pausing or suspending Quantitative Tightening (QT) due to fragile credit conditions and uncertainty around fiscal policy.

Statistics:

  • Bank rate: 4.25% to 4% (cut by 25 basis points)
  • GDP growth forecast: 1% for 2025 and 2026
  • Inflation: headline rate remains relatively high, but not a key source of concern
  • M4x growth target range: 2 to 6%
  • QT pause/suspension rate: advocated by most members

Sources:

  • Institute of Economic Affairs (IEA)
  • The Shadow Monetary Policy Committee (SMPC)
  • Reuters
  • Bloomberg