Adam Posen to quit MPC as he admits QE hopes were optimistic

ADAM Posen looks set to briefly resume his mantle as arch-dove before leaving the Bank of England’s monetary policy committee this autumn.

Posen, the sole member of the nine-strong committee to consistently vote for quantitative easing (QE) throughout most of last year, will end his three-year term in August to become president of the Washington-based Peterson Institute for International Economics on 1 January. Posen has favoured low interest rates at the risk of higher inflation for most of his MPC tenure, and led calls for additional stimulus that saw the central bank resume its quantitative easing programme in October 2011.

However, he grew increasingly concerned in the early part of this year about persistently high UK inflation, and dropped his call for additional asset purchases in April.

The move persuaded many analysts that additional QE from the bank was unlikely.

In an interview with MNI-Deutsche Börse Group, published yesterday before his departure from the MPC was announced, Posen said he now believed he became overly optimistic about the impact of the last round of easing by the bank.

“I have had to downgrade my estimate of the bang-per-pound of this last round of QE and that is one of the major components why I’m less optimistic now,” Posen said. He added that he no longer expects inflation to return to target this year. His own forecasts are now close to those in the BoE’s May inflation report, which predicts consumer price inflation of just less than 3 per cent at the end of this year, with no fall below the 2 per cent target before the second half of 2013.

Chancellor George Osborne and BoE governor Sir Mervyn King thanked him for his contributions.