Hold interest rates, says IEA’s Shadow Monetary Policy Committee

With money growth stable, there is no good reason to adjust anything.

The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) voted 8-1 to hold Bank Rate. One member voted to raise rates by 25 bps.
SMPC members felt that current money growth levels were satisfactory and should be maintained.
A group of independent economists that shadow the Bank of England has called for interest rates to be held. This comes in the context of the Bank’s Monetary Policy Committee (MPC) decision about interest rates this week (Thursday April 30th).
The Shadow Monetary Policy Committee, hosted by the free market think tank the Institute of Economic Affairs, has in the past criticised the Bank for paying insufficient attention to money growth and its implications for the outlook for inflation. In 2021, the SMPC made one of the earliest calls for the Bank to start raising interest rates and criticised the Bank’s forecasts for understating the threat of inflation. Subsequently, the SMPC was concerned that money growth rate allowed to fall negative (although to some extent that returned the level of money to that implied by its pre-Covid growth trend).

Growth in the UK’s standard M4ex broad money measure has been fairly stable since the start of 2025, falling roughly within the 4-5% band that the SMPC has regarded as broadly consistent with the inflation target since the early 2010s, albeit frequently towards the lower end of that range, reflecting the UK economy’s weak real growth performance.

Recent energy price shocks, which have not yet been close to the scale of past energy market shocks, should be regarded principally as a supply-side shock about which monetary policy can do relatively little, and pass-through into overall price inflation could be less than in the past. Some members argued that if the UK had a credible inflation target there would be a case for raising rates to seek to keep inflation within a target band or close to a target value, given that recent shocks could potentially add 1-2% to the inflation rate. Others contended that in the UK inflation targeting was abandoned as a de facto regime many years ago and that stable money growth should be the priority now. One member felt that recent inflation persistence and the need to control inflation expectations justified raising rates modestly now.

Andrew Lilico, Chair of the Shadow Monetary Policy Committee and IEA Economics Fellow, said:

“A reasonable objective is to keep a stable money growth, and we have a pleasantly stable monetary growth. So, there is no reason to change bank rate.”