Blanchflower Says U.K. Recession May Intensify ‘Significantly’
By Brian Swint
Feb. 25 (Bloomberg) -- Bank of England policy maker David Blanchflower
said the U.K. recession may intensify “significantly” and it’s too early to gauge when the economy will start to recover.
“This is not the bottom,” he said in an interview at Stirling University in Scotland today, before delivering a speech. “I expect the first quarter to be worse than the fourth, probably significantly worse. I don’t see any signs of green shoots at the moment.”
The British economy shrank the most since 1980 in the final three months of last year as spending by consumers and companies shriveled, data showed today. Bank of England policy makers reduced the benchmark interest rate
to 1 percent this month, the lowest ever, and defeated Blanchflower’s bid to cut it even further to 0.5 percent.
The bank’s forecasts show that “with monetary policy where it is, overly restrictive, we cannot get inflation
back to target unless we ease further,” Blanchflower said. “The question is, how far close to zero is the lower bound? I don’t exactly know.”
The lowest possible interest rate may be lower than 0.5 percent, “but at least let’s get there and stay there,” Blanchflower said.
With rates already at the lowest in the bank’s history, Blanchflower suggested that there’s a risk policy makers will be too slow to implement non-conventional measures on the economy.
“The evidence is that you get to close to zero as quickly as you can, you get to quantitative easing as quickly as you can,” Blanchflower said. “The mistakes have been doing too little too late.”
Blanchflower’s comments are more pessimistic than his colleagues Andrew Sentance
and Kate Barker
, who have said that the economy may start to pick up by the end of the year. Sentance and Governor Mervyn King
have said they see a similar size of contraction in the first quarter as in the fourth quarter, when GDP fell 1.5 percent.
The Monetary Policy Committee this month unanimously agreed to ask the government for authority to create money in so-called quantitative easing.
“We’re waiting to hear from the chancellor,” Alistair Darling
, Blanchflower said. “It’s a matter for the government because of the effects on public finances. Obviously the devil is going to be in the detail.”
The Bank of England’s forecasts, published Feb. 11, show the economy will contract at an annual 4 percent rate by the end of the first quarter and inflation will slow to 0.5 percent at the end of next year. The central bank aims to keep annual price gains at 2 percent.
Blanchflower, 56, voted for a rate cut at every meeting since October 2007 and favored a 1 percent reduction in the past three meetings. He will leave the bank at the end of May having served three years. Interest rates have fallen by 4 percentage points since October.
“The cuts we eventually did have my hallmark all over them,” Blanchflower said today when asked about his achievements on the MPC. His biggest failure was “to not get them to cut by a lot early enough.”
Blanchflower said he will continue teaching at Dartmouth University in Hannover, New Hampshire after his term expires at the end of May, and he’ll continue his research.
“I’m not going away,” he said.
To contact the reporter on this story: Brian Swint
in Stirling, Scotland at email@example.com
Last Updated: February 25, 2009 12:32 EST