Posen tells Bank of England to forget inflation 'ghosts'

The economist Adam Posen yesterday accused fellow Bank of England policymakers of leaving the country heading toward economic "tragedy" by failing to implement another round of monetary stimulus for the weakening British economy.

Mr Posen, an external member of the Bank's Monetary Policy Committee, urged his colleagues to "do the right thing" – to look beyond fears about rising inflation and return to a programme of quantitative easing that might breathe new life into the stalling economic recovery.

The American economist also called on the Bank and the Government to establish a new public lending bank to ensure that more credit reaches struggling small businesses.

The clarion call for monetary action came as the Office for National Statistic reported that consumer price inflation in the UK rose to 4.5 per cent in August, more than double the Bank of England's 2 per cent target. Retail price inflation rose to 5.2 per cent, up from 5 per cent in July.

However, Mr Posen argued "the lion's share" of the UK's above-target inflation rate is attributable to sterling's depreciation since 2008 (which has made imports more expensive) rather than the programme of quantitative easing that has been enacted. "There is no reason to think there will be sustained higher inflation in the UK, and or even that core inflation will remain at current levels", he said, adding that those who have voiced alarm about inflation were "chasing economic ghosts that are not there".

CPI was driven higher in August by higher electricity and fuel costs. Another increase is expected next month as higher energy utility bills continue to feed through to the index.

Mr Posen warned that monetary authorities around the world were on the brink of a historic mistake in failing to increase stimulus at a time of severe global economic weakness. He cautioned monetary officials against listening to "unduly influential voices" who claim policy stimulus would be ineffective or destructive.