LONDON (MNI) – Bank of England Monetary Policy Committee Adam
Posen said he would rather see inflation overshoot target by, say, one
percentage point on the upside than have deflation.
In comments in a speech at the London School of Economics Monday,
which departed from text, Posen noted that UK inflation is currently
running above 3% compared to the 2.0% target, but said that while he was
not unconcerned about inflation it was better to have an overshoot than
to experience deflation.
Posen also said the main UK political parties have been right to
draw the line on fiscal expansion.
Posen said that while the UK had a very strong reputation
internationally, having never defaulted on its debt in “100s of years”,
it was right to announce an end to fiscal largesse.
“I do have to draw a line here in the UK,” Posen said, in
reference to fiscal expansion.
“The three parties who ran for office were right to say we are
going to have an age of austerity,” he added.
The Conservative/Liberal Democrat coalition that came to power
following the May election has already unveiled the first fiscal
tightening steps, with the public spending cuts coming into force in the
2010/11 fiscal year.
In his earlier speech, Posen looked at the comparisons between the
current UK economic challenges and those of Japan during its lost
decade.
He highlighted the difficulties facing the UK if it wants to base
its recovery on export growth, noting the country’s main export market
is the euro area and “the prospects for strong growth in most of the
Euro Area are rather dim for the next several years.”
Posen also said that the UK’s fiscal tightening will hit aggregate
growth and noted the BOE, with Bank Rate already very close to the zero
bound, could not respond with a rate cut but only by postponing a rate
hike.
–London newsroom: 4420 7 862 7491; email:drobinson@marketnews.com
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