The Sunday Times, London's David Smith has an interesting article on the activities of the Bank of England's Monetary Policy Committee (which I checked out courtesy of the Economics Roundtable).
The look back:
THIS year the Bank of England’s monetary policy committee (MPC) will clock up 100 meetings since chancellor Gordon Brown granted it the power to set interest rates back in 1997.
So far there have been 91 such meetings in a long and generally successful run, in which the Bank has won some deserved plaudits...
Of the 91 meetings, two-thirds, or 62, resulted in no change in rates. Of the others, the split between rate rises and cuts was pretty even. There have been 14 increases and 15 reductions. There was also one cut outside the schedule, in September 2001, the Bank’s emergency response to the September 11 attacks.
Has the MPC, as some believe, become less activist and more predictable during its seven-and-a-half years of independence? The first meeting of the newly independent body was in June 1997. In the first three years it changed rates 16 times, nearly once every two meetings. In the next three, from June 2000 to June 2003, rates were varied only eight times, including the emergency 9/11 cut. Circumstances change, but it does seem the Bank has become less trigger-happy.
There are also some interesting observations on the current situation, and a look at things going forward.
... As the Bank approaches its 92nd MPC meeting this week, the question is a live one. The “shadow” monetary policy committee, a group of nine economists operating under the auspices of the Institute of Economic Affairs, captures the dilemma.
Six members of the shadow MPC vote for no change in rates, which is the outcome the City expects. But two vote for a rise of a quarter-point and one for a similar reduction. Even allowing for the old joke that if you put enough economists in a room every possible opinion is guaranteed, all three positions have something to be said for them...
A cut in rates would be a direct response to the cooling housing market. November’s mortgage approvals, 77,000, were the lowest since September 1995 — before the boom began.
Some say that whatever the Bank does it will be too late to prevent a sharp fall in house prices. Others argue that the MPC could prevent a housing-market rout if it gets its rate-cutting skates on...
The Bank has been desperate to avoid getting caught in a position where it is forced to cut rates because of the housing market. Hence its strenuous efforts to demonstrate, not very convincingly, that consumer spending would not be much affected by a drop in prices.
Its problem, as Stephen Lewis of Monument Research points out, is that the public verdict on the Bank “depends much more on whether it manages to head off a housing-market meltdown than on its success in keeping consumer price inflation close to the target”.
Its other problem, say some economists, is that the consumer price index — well behaved so far — is due for a bout of disobedience.
It's not easy being a central banker.