Suprise! UK Needs More QE, says BOE’s Adam Posen

May 18, 2012 at 09:58

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Bank of England policymaker Adam Posen has said he may have been premature in dropping his call for additional stimulus last month, because the underlying economy may be weaker than he thought earlier this year.

In an interview published by newswire MNSI, Mr Posen also said he was not sure the UK had avoided falling into a Japan (EUREX: FMJP.EX – news) -style downturn.

“I had been hopeful in the last few months that after we did an additional £125bn [quantitative easing] that was getting close to enough. And now I am debating whether … I was premature to think that,” he was quoted as saying.

The Bank restarted its quantitative easing asset purchases last October, but halted the scheme this month having bought a total £325bn of UK government bonds.

Mr Posen said he felt the latest round of QE had less impact than the initial £200bn programme, which was why he dropped his call for additional stimulus.

But he said he may have underestimated the weakness of Britain’s economy, which fell back into recession in the first three months of this year.

“I still think the weak data somewhat overstates it but given the revisions to the construction data, given the downward moves in the business surveys … it’s not just data, the underlying strength of the economy is weaker,” he said.

He added that inflation was higher than expected because of energy prices, and that while core inflation was proving to be sticky, that too would eventually subside.

New inflation forecasts from the Bank on Wednesday showed that it would take until the third quarter of next year before inflation falls below its 2pc target from its current level of 3.5pc, nine months longer than estimated in February.