Posen: £100bn more QE and 'public bank' for SME loans

Adam Posen, the external member of the Bank of England’s Monetary Policy Committee (MPC), has upped his call for more quantitative easing (QE) to £100bn and proposed a ‘public bank’ for businesses struggling to find credit on the highstreet.

Posen has long been the MPC's lone voice calling for a £50bn increase in the asset purchase programme which has seen the bank buy up £200bn of gilts on the secondary market to help kick start the economy.

But in a speech in Gloucestershire today Posen suggested an extra £50bn is the minimum required, saying the figure should be between £75bn and £100bn due to "external developments" which could worsen the UK's economic situation.

He said core and headline inflation would soon peak and begin to come down, and predicted it would fall below target levels a year from now.

Monetary stimulus was therefore "consistent with fulfilling the inflation target", he said.

"More monetary stimulus will encourage the right kind of restructuring, while excessive austerity will make useful reallocation of capital less likely, so stimulus is good for both demand and supply," he said.

Elsewhere in his speech Posen called on the government to set up a "public bank" or authority to lend to small businesses, specifically those who had already applied to private-sector banks and been turned down.

He also proposed the creation of separate institution to bundle and securitize loans made to SMEs.

Posen said the move would create a more liquid and deep market for illiquid securities which can then be sold off of banks balance sheets, describing it as a "good version of Fannie Mae and Freddie Mac".

The two US mortgage giants were mandated to provide funding to the American housing market before their failure in 2008, after they made billions in losses from defaults and repossessions.

Dubbing his proposals 'Bennie' - the ‘British Enterprise Investment Entity' - Posen said the plans would need an infusion of capital from the Bank of England to get off the ground.