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Posen says UK may need more QE

Monetary Policy Committee external member Adam Posen says he is considering voting for more quantitative easing at the next meeting of the committee.

In an interview with MNI Deutche Borse Group, Posen says he may have been wrong about the effectiveness of the last rounds of QE and the strength of the economy.

The MPC voted to expand its asset purchase scheme by £75bn last September and by £50bn in February. Posen says this has had less of an effect on mortgage interest spreads and lending to small businesses than he expected.

Posen voted against further QE in April and is expected to have voted against it in May’s meeting, the minutes of which are yet to be released. But, now he suggests he may join MPC external member David Miles in calling for another round next month.

He says: “I had been hopeful in the last few months that after we did an additional £125bn [of QE] that was getting close enough. And now I am debating whether I was premature to  think that.

“I personally have had to downgrade my estimate of the bang-per-pound of this last round of QE from what I though it was going to be and that is one of the major components of why I am less optimistic now that when I started to vote for no change in policy.”

Before the Q1 GDP growth figures were published showing the UK had returned to a technical recession, Posen said he believed the “economy was stronger than what the data is going to show”. He now says the economic weakness is genuine rather than the result of “odd” construction data or volatile energy output.

“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 is not just the data, the underlying strength of the economy is weaker,” he says.

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