Monetary Policy Roundtable

The Bank of England have published minutes of a 6-monthly meeting held with the Centre for Economic Policy on 24th June to discuss monetary policy matters. The meetings are held under ‘Chatham House Rules’ which means that participants are not named, but they included a range of economists from private sector financial institutions, academia and public sector bodies. The comments reported in the minutes are also not attributable to individuals or to the institutions they represent, but make some interesting reading which might well be useful for student economists returning to start on the A2 macroeconomics course in September.

At this sixth Roundtable there were two discussion topics:
• will the protracted period of above-target inflation lead to further upward pressure on prices?; and
• how will the contrasting fortunes of the household and corporate sectors play out?

Much of the discussion centred on concerns about the ability of business investment and the export sector to pick up the lack of demand in the consumer sector and lack government spending, in order to allow growth to occur, and this reflects closely some of the comments made at the National Economics Teachers’ Conference last month. Opposing upward and downward pressures on inflation are covered, as is the importance of inflation expectations, and the credibility of the MPC. Household real incomes and risks from above-inflation wage growth are also here, with some interesting debate as to whether there would be merit in changing the measure of inflation specified in the MPC’s remit.

Discussion of the household and corporate sectors looks at the different experiences of the public and private sector, as well as retail and manufacturing, and regional variations. There is reference to the changes in the pattern of income distribution over the last 25 years, and to forecasts for real earnings growth and living standards. Finally there is some consideration of whether, given the wide gap between Base Rate and the actual interest rates faced by households repaying debt, any rise in Base Rate is really likely to have as significant an impact on household budgets as might be feared.

Altogether this touches on so many aspects of A level theory that I see it as a really useful document for students to analyse in September, to reawaken their distant memories of AS theory and serve as an introduction to the interrelatedness of economic policy for A2.