Britain’s economy is tipping headlong into a recession that could last more than a year and cost hundreds of thousands of jobs, warns professor David Blanchflower, a member of the Bank of England’s (BOE) interest rate committee, in an interview with the Guardian.
Blanchflower said the BOE must cut interest rates rapidly to prevent the downturn being too painful and thought the UK could be in for a worse time than even the US, where interest rates have already been slashed and taxes cut to stimulate the economy.
Blanchflower has said house prices in Britain could fall by as much as third. The recent rises in unemployment were just the “tip of the iceberg” as job losses in house building combined with the financial sector and retail.
The number of people out of work and claiming benefit was 840,000, but the broader measure of unemployment reached 1.6 million — 5.2 percent of the work force. Blanchflower said it could climb to more than 7 percent — a figure that would mean several hundred thousand people losing their jobs.
He said that the Monetary Policy Committee had to consider the medium-term price outlook and that inflation — which hit a series-high of 3.8 percent last month — could fall sharply.
“Our job is to focus on inflation in the medium term so we have to look through the short-term shock from oil and commodity prices,” Blanchflower said.
“The economy is now slowing so fast that we run the risk of writing a letter on the low side in the medium term,” he said.
His warning comes days after the chancellor of the exchequer acknowledged that the slowdown could be “profound” and hinted he would change the Treasury’s fiscal rules as the slowing economy looks set to bust them.
Ernst & Young Item Club, a leading think tank, said yesterday that the economic outlook for Britain was like an “horror movie” as a result of the credit crunch and tumbling house prices.
Blanchflower has been voting for interest rates cuts for nine months but is unhappy that the other eight members of the monetary policy committee are reluctant to cut rates.
“I think we are going into recession and we are probably in one right now. It’s not too late to stop it but we have to act right now. Monetary policy has been far too tight for too long,” he said.
He wanted interest rates cut sharply and said his colleagues should worry less about the recent rises in inflation, which he thought would be temporary.
The Monetary Policy Committee has cut rates three times since the end of last year to the current 5 percent level.
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