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The Shadow Monetary Policy Committee (SMPC), hosted by the Institute of Economic Affairs, voted in January 2026 to cut the UK Base Rate by 25 basis points to 3.5%. The decision reflects a growing consensus that inflation is easing, money growth is subdued, and recession risks are becoming more visible across the economy. While views differed on the scale of the cut and the appropriate stance on Quantitative Tightening (QT), the majority agreed that monetary conditions are now tight enough to justify a modest easing.
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The debate took place against a backdrop of weakening economic momentum. Private‑sector output is softening, insolvencies are rising, and the labour market — once a source of inflationary pressure — is now showing signs of strain. Several members highlighted that pay growth is slowing, unemployment is edging up, and household and business confidence remains fragile. With inflation expected to fall sharply over the first half of the year, the case for maintaining a restrictive policy stance has weakened.
Among those voting for a cut, Roger Bootle emphasised the shifting balance of power in the labour market, arguing that job losses and softer wage growth will help bring inflation down more quickly. Julian Jessop echoed this view, noting that base effects in food and energy prices mean inflation is on track to return to the 2% target sooner than many expect. Both argued that interest rates are now higher than required to meet the mandate.
Trevor Williams, who voted for a larger 50bps cut, warned that real interest rates remain too high for indebted households and that the UK’s stance is materially tighter than that of the eurozone. With similar growth and inflation across the two regions, eurozone interest rates are around 2%, while the UK’s are 3.75%, creating an unnecessary drag on domestic demand. Williams added that a lower rate would provide relief to vulnerable households and businesses already hit by higher taxes, helping to offset the combined squeeze from fiscal and monetary tightening. He argued that subdued money growth suggests inflation will stabilise over the medium term, with a short‑term risk of undershooting.
Others were more cautious. Tim Congdon and Juan Castaneda argued that money growth is already in the ideal 3–5% range and that stability should be prioritised. Andrew Lilico also favoured holding rates, noting that inflation remains above target and recession risks appear to be driven more by supply constraints than demand weakness. Peter Warburton highlighted global risks, including the possibility of an oil price resurgence and fragility in the US credit system, and argued for suspending QT to avoid further tightening of financial conditions.
Despite these differences, the committee agreed that monetary policy is now at a turning point. Inflation is falling, money growth is subdued, and the economy is losing momentum. A 25bps cut — supported by five members — was judged the most appropriate response, balancing the need to support activity without undermining credibility.
The SMPC will meet again in April.
Full minutes of the meeting can be found here [ [link removed] ].
The Shadow Monetary Policy Committee (SMPC) is a group of independent economists whose purpose is to monitor the decisions of the Bank of England’s official Monetary Policy Committee and make policy recommendations of its own.
The SMPC has met once a quarter since July 1997 at the Institute of Economic Affairs (IEA).

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