Happy birthday MPC
Published On 2 May 2007
When the Bank of England's Monetary Policy Committee (MPC) meets on May 10th it will celebrate ten years of having the responsibility for controlling the UK's interest rates.The first time the MPC met was on June 6th 1997, just a month after Labour's general election victory. At its first meeting, the committee decided to increase interest rates from 6.25 per cent to 6.5 per cent.
To mark the anniversary Halifax has analysed all the MPC monthly decisions and come up with some surprising findings.
In general, Halifax's research proves that the MPC has been successful in controlling interest rates and inflation. In the ten years since its first meeting there have been fewer interest rate changes than there were in the decade before - 36 compared to the 46 between 1987 and 1997.
Similarly, interest rates have remained lower and fluctuated less than they previously did. The highest they reached under MPC was 7.5 per cent in 1998, while the lowest rate was 3.5 per cent. In contrast, pre-MPC, interest rates reached 15 per cent between October 1989 and October 1990. The lowest they ever dropped to was 5.25 per cent in 1994.
In general, the MPC has been happy to keep rates stable - opting to leave them unchanged at 70 per cent of their meetings.
This stability has reflected the fact that inflation has been better controlled since the MPC came into existence. In the decade since the Bank of England's independence, the average rate of inflation has been just 2.7 per cent. Before 1997, the ten-year inflation average was 4.5 per cent.
"The past decade has been a period of remarkable economic stability," said Martin Ellis, chief economist with Halifax.
"Interest rates and inflation have both been lower and varied in a much narrower range since the MPC took over responsibility for setting interest rates than in the previous ten years.
"The MPC members have sensibly opted to keep a steady hand on the tiller at the majority of their meetings. Unsurprisingly, however, the quarterly Inflation Report is often a catalyst for interest rate changes on the committee's part," Mr Ellis added.
Indeed, recent increases in inflation have meant that many experts are already predicting that the MPC may be forced to increase interest rates again when it meets next week.
Earlier this month, the Office of National Statistics (ONS) published figures which showed that inflation had reached its highest level since the MPC first met.
"The latest inflation figures are over one per cent above target, which strengthens the case for a further rate rise and we expect the Monetary Policy Committee to announce a rise to 5.5 per cent next month," commented Scottish Widows at the time of the ONS announcement.
Equally, Abbey agreed that rising inflation made it likely the MPC would be left with little choice but to increase interest rates to celebrate its birthday.
"Certainly, financial markets have now firmed up their view of another base rate rise next month," said Barry Naisbitt, the chief economist at Abbey.
"The Bank of England's Inflation Report next month will be critical in informing markets of the extent to which the Bank still expects inflation to fall in the second half of the year."
