MPC member warns of ‘lost decade’


Bank of England’s Monetary Policy Committee (MPC) member, Adam Posen, has warned that the UK is facing a Japan-style lost decade.

Japan, which is the world’s second largest economy, endured a so-called “Lost Decade” in the 1990s, whereby economic expansion grinds to a halt.

In a speech, Mr Posen warned that Britain’s dysfunctional banking system bears similarities with that of Japan and could hinder a tentative recovery.

Mr Posen is calling on the Government to break up banking giants and encourage new competitors into the industry in a bid to drag the economy out of recession.

Last week, the Bank of England’s Governor, Mervyn King, warned that a major rethink of how banks are structured is required.

The Governor called for banks to split their core business from riskier practices, so they do not get too big to be allowed to collapse.

Mr Posen echoed Mr King’s comments and called for a “financial system that is subject to sufficient competitive pressure such that it provides enough traditional lending to non-financial businesses, rather than one beset by too-big-to-fail institutions who engage in relatively unproductive speculative behaviour.”

Dr Adam Posen succeeded Tim Besley as an external member on the Monetary Policy Committee and his appointment took effect on 1 September.

He was an economist at the Federal Reserve and in 1999 co-wrote a book on inflation with Ben Bernanke, the chairman of the Federal Reserve.

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