King 'excessively political' claims MPC's Posen

(SHARECAST) – Governor of the Bank of England Mervyn King has been criticised by central bank policymaker Adam Posen for his endorsement of the coalition government’s plans to cut the budget deficit.

Posen, one of the nine members of the Bank’s Monetary Policy Committee, said King’s backing for the plan following May’s Inflation Report was “excessively political”.

“There was a difference of opinion at the MPC at the May meeting over a particular paragraph in the report that was talking about the need for a particular speed to deal with the fiscal policy,” Posen told MPs on the Treasury Committee.

“A number of people on the committee, myself plus at least one other… were concerned that the statement could be seen as excessively political in the context of the election,” he said.

“We expressed that point of view. We offered alternative language. The majority of the committee decided that they were comfortable with the language that appeared in the report.”

Posen was unhappy with the paragraph stating: “A significant fiscal consolidation is necessary in the medium term. The committee’s projections are conditioned on the plans set out in the March 2010 Budget.”

“A more detailed and demanding path of fiscal consolidation than set out in the March 2010 Budget may therefore be needed in order to avoid unnecessary increases in the cost of issuing public debt.”

Minutes of November’s policy meeting, released last week, revealed the MPC was split three ways, though a large majority still voted for no change in either the level of interest rates or the size of the current quantitative easing programme.

Andrew Sentance again wanted a quarter-point rise in interest rates while Adam Posen voted for a £50bn increase in the stimulus package to £250bn.