MPC member says deflation still a threat
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Deflation or even outright recession is still a threat to the UK in the medium term, according to Monetary Policy Committee member Adam Posen.
In his speech at the Society of Business Economists annual conference in London today, Posen said the inflationary creep experienced by the UK in 2010 is an “unsurprising result of having set monetary policy to prevent a terrible downside risk” and is “not worth panicking over” but argued that the problems in the global economy may still pull the UK into a deflationary environment.
He said: “I think the UK is still poised between two very different outcomes - a recovery, which we are now in, albeit perhaps an initially weak one and the renewal of a severe recession if not outright deflation.”
While Posen said encouraging signs in Asia and the US would help the UK recover, the austerity measures both at home and in Europe are severe: “In my opinion, that leaves the UK economy tentatively in the recovery state, but still subject to switching back into the recession state.”
But Posen said that id deflation is averted, monetary tightening would be necessary, quickly. He said: “If we get to the positive outcome, I will be only too happy to raise rates, should others on the MPC agree to do so.
“I regret to say that I am not as confident, however, that we will get to that favorable situation, and that much of what determines our outlook will take place beyond our borders and certainly beyond the MPC’s remit.”
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