Inflation figures released today showed that CPI had crept up a little, to 4.5%, though this was broadly in line with expectations. But this is unlikely to move the monetary policy committee, whose members last month voted unanimously against a rate rise. But the committee's arch-dove goes further.
Adam Posen thinks things are bad.
And he doesn't just think they're bad enough to merit more QE.
“Just because we have [QE] … does not mean we should stop there if the situation is sufficiently serious. Unfortunately, the underlying economic situation in the UK and throughout the G7 is that serious.”
Posen says it is “time for the Bank of England and HM Government to explore ways [to] make up some of the credit and investment gap” that is holding back growth.
What he suggests is:
That the government set up two new public institutions “one would be a public bank or authority for lending to small business” the other would be a Freddie Mac/Fannie Mae style entity to “bundle and securitize loans made to SMEs… to create a more liquid and deep market for illiquid securities which can then be sold off to banks”.
The Bank of England could, Posen suggests, support the creation of these institutions by providing the initial capital.
It's certainly a bold suggestion or – as FT Alphaville put it – “an intriguing British take on the liquidity trap to say the least”.