Blanchflower calls for big interest rate cuts
Blanchflower calls for big interest rate cuts
Friday 29th August 2008
The UK economy needs interest rate cuts, a member of the Bank of England's monetary policy committee (MPC) said today.Speaking to Reuters, David Blanchflower warned a rate cut of more than 0.25 percentage points was needed to halt the economy driving into prolonged recession.
Out of the last 12 meetings of the MPC, Mr Blanchflower has voted ten times for a rate cut of 0.25 per cent and once for a reduction of 0.50 per cent.
He told Reuters: "The fears that I have expressed over the last six months have started to come to fruition.
"I've obviously voted on quite a number of occasions now for small cuts but we need to act and we probably need to act in larger amounts than that. We need to actually get ahead of the game and it appears that we are now behind."
He warned given the current direction of the economy, some 330,000 people could lose their jobs by Christmas and house prices could fall by more than 30 per cent.
At the last meeting of the MPC earlier this month, Mr Blanchflower – the US-based academic who attends meetings via video link – maintained the downside risks to activity growth were greater than the view taken in the Inflation Report.
As such he saw less risk of inflation being persistent and more risk of a slowing economy eventually causing inflation to fall too low.
The MPC meets next week to set rates for September, with the consensus among analysts being the rate-setters will hold the cost of borrowing for another month as they take a wait-and-see stance balance high inflation against the threat of recession.
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