Britain 'in recession and Bank of England must cut interest rates'
Britain and the US are ALREADY in recession and the Bank of England must CUT interest rates tomorrow, says ex-member of rate-setting committee
- Prof David Blanchflower says it would be an ‘error’ for interest rates to rise again
- The economist claims America and the UK ‘are actually already in recession’
- He says inflation is not ’embedded’ in the economy and will begin to ‘plummet’
The UK economy is already in recesssion and the Bank of England should slash interest rates tomorrow, a former member of the rate-setting committee has claimed.
Professor David Blanchflower, who sat on the Bank’s Monetary Policy Committee between 2006 and 2009, insisted it would be an ‘error’ for interest rates to be raised further.
In response to soaring inflation, the Bank has raised interest rates three times in a row since December from 0.1 per cent to 0.75 per cent.
And there is a widespread expectation that the MPC will raise rates once again tomorrow.
But Prof Blanchflower pushed back at the belief that further rates rises were needed from Threadneedle Street to deal with inflation, as he predicted the UK economy would begin to ‘tank’.
‘The reality is it looks like the US and the UK are actually already in recession,’ he told BBC Radio 4’s Today programme.
‘The European Central Bank, faced with much the same circumstances, actually is not raising rates.
‘So there is really a question about whether you should raise rates – even though there’s inflation present – when it looks like the economy is either headed to, or in the UK case, looks already to be in recession.’
Official figures showed GDP increased by just 0.1 per cent in February, compared to the robust 0.8 per cent seen in January
Inflation and interest rates both spiked in the 1970s – but Professor David Blanchflower said the UK faced a different situation today
Prof Blanchflower, a former economic adviser to Labour under Jeremy Corbyn’s leadership, claimed that consumer confidence and business confidence measures had ‘collapsed’ amid the cost-of-living crisis.
‘The consumer is basically being faced with Armageddon and they’ve obviously responded to these rising prices by pulling back their spending,’ he said.
‘So that’s the one set of things that predicts recession, predicts it in the US, predicts it in the UK.’
The Dartmouth College academic described the UK’s lower-than-expected economic growth in February, estimated to be 0.1 per cent of GDP, as ‘very poor’.
And he claimed even that small growth was likely to be revised to negative growth, adding: ‘What we’re going to see going forward is basically a recession.’
Prof Blanchflower, a former member of the Monetary Policy Committee, insisted it would be an ‘error’ for interest rates to be raised further
In response to soaring inflation, the Bank of England has raised interest rates three times in a row since December from 0.1 per cent to 0.75 per cent
Prof Blanchflower said, like in 2008 during the financial crisis, inflation was not ’embedded’ in the economy and would begin to ‘plummet’ following the ‘shock’ of the Covid pandemic and the war in Ukraine.
‘In August 2008 we had exactly the same arguments – oil prices were high, inflation was high,’ he added.
‘And what happened in the months following? Inflation started to plummet.
‘The history suggests that those who argue that inflation is embedded are completely wrong.
‘There’s no evidence of high union power, there’s no evidence it’s like it was in the 1970s.
‘So, yes, these are shocks, but these shocks will actually start to dissipate and inflation will come down as it always has done.’
Asked what he would do if he were still sat on the MPC, Prof Blanchflower said: ‘I’d be voting for a cut at the meeting tomorrow because the only issue, going forward, is when will the MPC have to reverse itself?
‘It’s not “if” it will have to do that, it’s going to be “when”, as the economy starts to tank.
‘We’ll start to see bad output numbers, we’ll start to see rising unemployment numbers.
‘And the MPC will actually just be thinking about when it has to reverse itself, not about when it’s going to raise rates.
‘When it’s going to have to cut them because of the error that it’s created and the recession that once again it’s created.’
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