Dove Posen says Bank is ‘wasting too much time’ over image

ARCH monetary policy dove Adam Posen has accused the Bank of England of “wasting too much time” worrying how politicians and the markets would react to further quantitative easing (QE) and worsening Britain’s economic prospects through its inertia.

The economist, who has been the lone voice on the Bank’s monetary policy committee (MPC) in calling for further QE, yesterday made another plea for an urgent injection of at least £50 billion into the economy, warning that failure to act would see the British people “suffer avoidable and potentially lasting damage”.

The US academic also called for two public institutions to be set up to ease the log-jam in small business lending, claiming it is depriving the economy of vital investment and growth opportunities.

He believes the UK government should create a public small business bank, based on the US Small Business Administration or Germany’s Kreditanstalt für Wiederaufbau, to increase the supply of credit.

“The many recently unemployed lending officers from British banks, particularly from branches outside of the City of London, provide a ready skilled labour pool with which to staff such an institution,” he said during a speech in Gloucestershire.

The second organisation would be a “good version” of bailed-out US mortgage agencies Fannie Mae and Freddie Mac which would be able to “bundle and securitise loans made to SMEs” and create a more “liquid and deep market” for such loans, which could then be sold off of banks’ balance sheets.

Posen’s comments about the Bank’s actions over the past year echoed those of outspoken former MPC member David “Danny” Blanchflower who saw the last recession coming and consistently called for rapid and deep interest rate cuts. He later accused his former MPC colleagues of being “hobbled by group think” when they failed to take decisive action early enough.

“There are too many excuses for passivity being offered, none of which stand up to scrutiny or to the data,” Posen said.

“Central bank officials have wasted too much time over the last year worrying about how their institutions would appear to markets, to politicians and to the public were we to undertake more stimulus. Sometimes you have to do the right thing even if it may be misperceived.”

Despite the latest figures showing yesterday that inflation had jumped from 4.4 per cent to 4.5 per cent, Posen insisted that the cost of living is about to peak.

“Make no mistake, the right thing to do right now is for the Bank of England and other G7 central banks to engage in further monetary stimulus. If anything, it is past time for us to do so,” he said.

“If we do not, then our economies and our people will suffer avoidable and potentially lasting damage.”