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Posen: Economy could lurch back into recession

City A.M. Reporter
THE economy is in a tentative recovery but could still switch back to recession, Bank of England policymaker Adam Posen has warned.

In a speech in London, Posen said the economy was trapped between two outcomes – the austerity in Europe and the recovery in the rest of world.

"If we are fortunate, our present monetary policy stance combined with the UK economy's natural tendency to recover and with sustained global growth outside of Europe will be sufficient to get the UK to the good outcome.

"That would result in more inflation overshooting in the interim, given our policy stance, and in that state of affairs I would be only too happy to vote for an interest rate increase."

But Posen said he was not confident that the UK would get to that outcome, indicating he is not about to join fellow policymaker Andrew Sentance who voted for a rate increase earlier this month.

Posen noted that inflation had been turning out higher despite deflationary pressures and said this could not be put down to just one-off factors.

He said there was probably a small rise in inflation expectations but this slow creep was not enough to justify tightening policy when the forecasts argued otherwise.