Business

Published: Tuesday October 27, 2009 MYT 7:42:00 AM

UK policy maker dismisses risk of high inflation


LONDON: There is no evidence that the policy of pumping money into the economy known as quantitative easing will trigger unacceptably high inflation, a member of the Bank of England's monetary policy committee said Monday.

Adam Posen said in a speech in London that the unprecedented injection into the money supply would help put the British economy on the road to recovery - although it could be a rocky and unpredictable ride.

The quantitative easing program lets the central bank buy assets from banks to flush the system with cash, to a current limit of 175 billion pounds ($290 billion).

As of Oct. 1, the bank had purchased 162.2 million pounds of assets.

Posen said "there is no evidence from relevant periods of U.K. or other major economies' economic history that QE (quantitative easing) will result in high or sustained inflation."

He compared unconventional monetary policy like quantitative easing to driving a 10-year-old car "with a cranky transmission, down a rural road because the M4 (highway) is closed, without a good map or signage, and with all kinds of strange surprises blocking traffic."

"You will get where you are going using QE, but you are not sure how long it will take to get there, and you will not enjoy the ride."

Figures released this week showed the British economy shrank 0.4 percent in the third quarter, surprising forecasters who had predicted an end to the recession.

Posen said "the worst threats from the crisis of 2008-09 are behind us," but acknowledged there were concerns over "the ability of the U.K. financial sector to provide sufficient support for the coming recovery."

He said there remained a "major question" about the amount of credit that would be available to small businesses as the economy recovered.

"I am concerned because the financial system in the U.K. does not seem to have a spare tire for the provision of capital to nonfinancial businesses when the banking system has popped a leak," he said. - AP


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