The British Chambers of Commerce gave its backing to Bank of England policy maker Adam Posen after he advocated more stimulus to aid economic growth.
“Adam Posen is right,” BCC Chief Economist David Kern said in an interview at the Loan Market Association’s Syndicated Loans Conference in London yesterday. “All the evidence that we have suggests growth is slowing. Possibly as early as November we will get more quantitative easing.”
Posen this week said Bank of England officials should discuss more bond purchases as he sought to “elicit reactions” from the public and businesses on his views. Kern’s verdict puts a lobby group representing 100,000 companies on Posen’s side at the bank’s Oct. 7 meeting, which may produce a three-way split if Andrew Sentance keeps up his bid to raise interest rates.
“Even though I acknowledge the longer-term risks of inflation, in the short term, the main risks are either Japan or a double dip,” Kern said, referring to the deflation experienced in Japan. “We will grow for some time but it will be weaker growth.”
Posen said in a Sept. 28 speech that “monetary policy should continue to be aggressive about promoting recovery, and, subject to further debate, I think further easing should be undertaken.” He added in an interview broadcast on the Yorkshire Post’s website yesterday that more stimulus isn’t “a foregone conclusion.”
An index of U.K. manufacturing, based on a survey of factory purchasing managers, fell to a 10-month low in September. The gauge dropped to 53.4 from 53.7 the previous month, the Chartered Institute of Purchasing and Supply and Markit Economics said in an e-mailed statement.
Kern said that the central bank’s Monetary Policy Committee may add to the bond-purchase plan by 25 billion pounds ($39 billion) in November, with another 25 billion-pound increase in February. That would bring the bank’s total bond holdings to 250 billion pounds.
Sentance has called for an increase in the benchmark interest rate from a record low of 0.5 percent at each decision since June to tame consumer prices. Inflation exceeded the government’s 3 percent limit for a sixth month in August, stoked by the weakness of the pound and higher commodity costs.
UBS AG today said the Bank of England is likely to resist Sentance’s bid to raise interest rates for longer. UBS economist Amit Kara cut his rate forecast for 2011 to 1 percent from 2 percent and said policy makers will start increasing the benchmark in the third quarter of instead of the first quarter. Kara still predicts no further stimulus by the bank.
“On balance, we do not expect the MPC to engage in another round,” he said in a note. “This not least because we expect a global economic recovery and because of persistent elevated inflation in the U.K.”
Kern said that economic growth is a bigger concern than inflation. The spending squeeze by Prime Minister David Cameron’s government to curb the record budget deficit adds to the case for further stimulus, he said.
“I support the fiscal consolidation but if you support it the logic is you’ve got to do everything else to make sure this doesn’t push you down,” he said.
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