By politics.co.uk staff
A second round of quantitative easing is needed to stave off a potential double-dip recession, a member of the Bank of England's monetary policy committee (MPC) has said.
Comments by Adam Posen to the Hull and Humber Chamber of Commerce, Industry and Shipping raised the prospect of a three-way split on the MPC next month, analysts said.
Mr Posen said the lessons of Japan in the 1990s and the US and Europe in the 1930s showed that the process of economic recovery after a financial crisis was one of "unemployed resources, dysfunctional banking systems and the degree of policy stimulus".
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He predicted UK inflation to fall short of its two per cent target in 2012 and 2013, resulting in an ongoing lack of growth as happened in Japan in the 1990s.
"When a central bank underestimates how fast an economy can run without causing inflation, or how far away an economy is from full employment, it can cause slow growth and even recession or deflation," he warned.
Mr Posen's comments are directly opposed by Andrew Sentance, another MPC member, who has consistently voted for interest rate hikes in recent months.
Yesterday official figures confirmed Britain's economy grew by 1.2% in the second quarter of 2010 - the fastest quarterly acceleration in growth for nine years.