The Bank of England’s Monetary Policy Committee (MPC) will publish their decision today on whether the interest base rate should rise. It has been widely expected that interest rates would rise to 0.75% from 0.5%.
The MPC will publish its report later today. So, what is the MPC? The committee is made up of nine people, one of whom is the governor of the Bank of England Mark, who chairs the committee. Officially, the committee meet eight times a year although there are other meetings where discussion on the economy and scrutiny of evidence takes place to ascertain how the economy is performing and what policies may be necessary.
Among the 9 decision makers is the Governor of the Bank of England, Mark Carney, who chairs the committee.
There is also a designated pre-MPC meeting, where Bank of England economists provide committee members with a snapshot of the economy a week before the interest rate decision. Decision day at the Bank of England is when policymakers reveal their thinking on what level interest rates should be and members will vote on whether to raise, cut or leave interest rates and the conclusion of their vote will impact families and businesses across the UK, as the “base rate” set by the Bank is used as a reference point for millions of mortgages and savings accounts.
One former member of the committee, Andrew Sentance, between 2006 and 2011, says these meetings are grand performances.
“We would be sat down theatre-style, facing an array of Bank of England staff. They would present to us various different aspects of what’s been happening in the economy,” he says.
“Those meetings never changed my mind however, as I followed the data closely anyhow – so nothing surprised me.”
The MPC also receives reports from its regional agents from around the country. One ex member of the committee who served between 2006 and 2009, Professor David Blanchflower has said this data was crucial.
“MPC meetings were infuriating. I disagreed with everyone in the room, because I was listening and paying attention to our agents that were telling us what was happening around the country,” he explains.
“The economy of the streets is so important; as economists, it’s our connection to the real world.
“We had 12 agents around the country that produced reports every month and gave region scores. I felt they called the recession in 2007/08. In the months before, when they presented their reports to us, I thought we should be cutting rates, but nobody else agreed. I felt ostracised.”
Prof Blanchflower urges the current MPC members to be independent: “It shouldn’t be a tyranny of group opinion. There are nine people on that committee, so there should be nine different opinions.
“They also shouldn’t just guess how people in the country are coping – they should go out and speak to people, not just in London but Huddersfield, Bangor, Swansea as well.”
A week before the committee members vote, which is usually on Wednesdays, they meet to discuss and also agree economic forecasts. Also, if the quarterly economic evaluation is due to be published, that is done then too.
The governor ordinarily puts forward a proposal on interest rates and quantitative easing he believes will win a majority.
Andrew Sentance says the vote meeting is an open debate: “We’re led into a typical meeting room in the Bank of England building. We sit down, and the chair of the committee – the governor – will ask for everyone to explain how they are voting, starting with the deputy governor who is in charge of monetary policy.”
“He then turns to the rest of the committee, inviting them to speak in a varied order. It’s meant to be a random order, but certainly when I was a member, I think the governor thought about the flow of the debate and so picked members to speak in accordance of how he thought they would vote. At the end of the meeting, the majority wins.”
As there are nine members of the committee, there is no chance of a ‘split down the middle’ vote. Very occasionally the committee have been down a member as they have been unable to appoint someone in time for the meeting. In those circumstances, the governor has the final say.
The result of the vote is published on a Thursday, along with the minutes of the meeting. Later today we will find out the result of the vote and whether interest rates are going up.