Posen: After ECB’s failure, the Bank of England should purchase corporate debt and defend QE

Tim Wallace
Follow Tim
BANK of England official Adam Posen yesterday said that he was “disappointed” by the weak impact of the €1 trillion (£808bn) the European Central Bank (ECB) pumped into banks late last year, and argued that the time has come for the Bank of England to buy up corporate debt.

The ECB had hoped to stop a new credit crunch emerging and reduce the pressure on troubled Eurozone governments.

But the positive impact only lasted a few months, and Monetary Policy Committee (MPC) member Posen said the Bank of England must now print more money to help restore UK firms’ confidence.

Businesses are hoarding money because they are afraid of the economy’s weakness, said Posen – but that hoarding itself creates further weakness in the economy.

To rectify this,the Bank of England should extend its quantitative easing (QE) programme to buy corporate assets, lowering borrowing costs for firms and boosting their confidence, he said in a speech.

Such an extension could “keep us from going further into a self-fulfilling cycle of fear and contraction”, he argued.

The arch-dove, who is stepping down this summer, also said opposition to such a move should be met with robust defence by the Bank of England, which should explain QE’s aims firmly.