Cut rates as recession gloom deepens, Bank man demands

Have you ever heard of Blanchflower ? You have now. To most of us, the name conjures up fond memories of two great Belfast footballing brothers of the 1950s and 60s. But now there’s a new Blanchflower – David. (no relation as far as I know). David Blanchflower moves into history as the first member of the Bank of England monetary policy committee (MPC) to break ranks and give a stark warning of deep recession – in public. You aint seen nothing yet, is his jist.

He forecasts 330,000 more people losing their jobs by the end of the year – banks and construction firms being the first to lay staff off. He’s got some evidence on his side. As the Guardian reports: “Fears of recession this winter intensified.. with High street sales in Britain falling at their sharpest pace in at least 25 years this month and the Nationwide building society reporting house prices falling at £150 a day… ”

Against that background, Blanchflower says: “I think people have become complacent and they have not understood what would happen if an economy starts to slow fast, if firms start to close. What we have now is a turning point in many ways – certainly you might think of it as a paradigm shift. We have a global financial crisis, an oil shock coming [and] people with little experience of what is really going on.”

The MPC last made a quarter point cut way back in April. Will it heed calls to make new cuts anytime soon? A Reuters poll of economists doesn’t think so.
British interest rates will remain flat until early 2009 but the chance of a cut this year is on a knife edge in the face of a flagging economy and as long-term inflation prospects ease. All 67 economists polled between August 26 and 28 said the Bank of England bank would leave rates on hold at 5.0 percent when it meets next week despite growth coming to a virtual standstill, but deeper and faster cuts are now expected next year”.

But a year in economic life is an eternity. Like those economists, policymakers must be hoping that as growth stalls, falling prices will give UK business an opening to boost exports and output generally. Picking the moment to back business by cutting interest rates from the present 5% will require fiendishly fine judgment. Blanchflower’s call for action now has few takers. No one expects Gordon Brown to resile from his first act as Chancellor and widen the Bank’s anti-inflation brief by adding to it the need to stimulate growth. But arguably the Bank is firmly impaled on a cleft stick already. Deprived of the old option of a quick-fix cut in rates, the political stakes are rising sharply for Brown as he prepares to launch an autumn package to blunt the roughest edges of the downturn. Like Barack Obama, he’s got to give us hope. The package had better not be an anti-climax.

Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London