Posen: lack of credit could hurt growth

POOR availability of credit to non-financial companies will lead to insufficient investment in the British economy and could harm the potential rate of growth in the future, monetary policy committee (MPC) member Adam Posen said yesterday.<br /><br />In his first public speech since joining the MPC in September, Posen said he was concerned about the ability of Britain&rsquo;s financial sector to provide sufficient support for the coming recovery and in particular, the availability of credit to small and medium enterprises. <br /><br />&ldquo;I am concerned because the financial system in the UK does not seem to have a spare tyre for the provision of capital to non-financial businesses when the banking system has popped a leak,&rdquo; Posen said.<br /><br />Posen&rsquo;s speech at Cass Business School came as the Bank of England announced that a scheme launched almost three months ago by the Bank to lend cash to non-investment grade companies has had no takers to date, despite ongoing concerns about credit availability to small and medium-sized firms. <br /><br />In its quarterly report on the Asset Purchase Facility, the Bank said: &ldquo;There were no programmes that were immediately eligible for the... facility and consequently no purchases have been made so far.&rdquo; But it added that banks had said during the consultation process that it&nbsp; would take a number of months to set up programmes that would be eligible.<br /><br />Prior to joining the Bank of England, Posen criticised its quantitative easing (QE) programme for deciding to purchase only gilts. While Posen appreciated that this was because of the relative thinness of UK markets for corporate bonds and commercial paper, he added that this limitation on QE exposed a major long-term structural problem in UK financial markets.