Bank of England split on next move

By Matt Falloon and Christina Fincher

LONDON/EDINBURGH (Reuters) - Mortgage approvals fell to a record low in March as the housing downturn gathers pace but Bank of England policy-makers are increasingly split over how to tackle slowing economic growth and rising inflation.

Speaking to MPs in London on Tuesday, Bank of England Governor Mervyn King said people shouldn't overdo all the "doom and gloom" on the economy, giving no indication he was in a hurry to cut interest rates again.

But fellow policy-maker David Blanchflower, in Edinburgh just hours later, said Britain faces a real risk of recession and a fall in house prices of more than 30 percent unless the Bank of England acts quickly in bringing down interest rates.

Blanchflower, a massive dove, had wanted to cut interest rates by 50 basis points earlier this month but a majority led by King pushed through a quarter-point reduction. Arch-hawks Tim Besley and Andrew Sentance had wanted no cut at all.

Tuesday's data showing new home-loan approvals falling to just 64,000 in March and retail sales falling sharply added to gloom about the economy ahead of this week's local elections, where Prime Minister Gordon Brown's Labour Party is expected to take a beating.

King, nonetheless, told a parliamentary committee that things had to be put into perspective. "We don't have the ability to ensure that the economy grows at exactly the same rate year in, year out. I don't think we should cry doom and gloom."

A period of slower economic growth would not be a "disaster" for Britain, he added.

Blanchflower, however, said Britain was going the way of the United States, where plunging real estate prices have put the economy on the brink of recession.