Posen sees no early end to QE

By David Milliken and Fiona Shaikh

LONDON (Reuters) - The Bank of England's reduction in weekly gilt purchases does not signal an end to quantitative easing, incoming monetary policy committee member Adam Posen said on Tuesday.

Posen, speaking to MPs before he takes up his post in September, said financial markets had misinterpreted the Bank's unexpected decision last week not to raise its 125 billion pound total for quantitative easing.

"If in one month at its meeting it doesn't tweak the number, that doesn't strike me as a terribly significant measure one way or another," he said.

"Much too much has been made of this so-called pause. The Bank hasn't withdrawn QE, the Bank hasn't foreclosed future QE."

Yields on benchmark 10-year gilts rose by more than 15 basis points last Thursday after the Bank cut the volume of gilts it is buying each week to make the remaining funds stretch until the end of the month.

Posen did not expect Britain's economic recovery to be smooth, though he said a "sawtooth" recovery with ups and downs could start later this year.

"We're looking at a firming of conditions and I would be surprised if we did not get back to growth by early 2010, possibly earlier," he said. "But I don't foresee the UK or any other major economy getting a smooth above-trend path for the next couple of years."

DEFLATION WORRY