BoE's Sentance says severe recession more likely

LONDON (Reuters) - The risks of a severe recession in the country have increased and policymakers need to take account of negative economic forces when setting interest rates, Bank of England hawk Andrew Sentance said on Friday.

"We are obviously not sure exactly how this whole situation will develop. We've had some quite deep and severe recessions in the UK before, and hopefully we can avoid that sort of situation in the current circumstances, but the risks of that have increased," Sentance told BBC Radio Leeds.

"Yes, we are seeing some negative forces affecting businesses on the ground and we need to factor that into our decisions on interest rates in the future," said Sentance, who is considered one of the more hawkish members of the Bank of England's Monetary Policy Committee.

The British economy is expected to have contracted in the three months to September with policymakers and economists now agreed that the first recession since the early 1990s is underway.

Analysts polled by Reuters expect the first official reading on third-quarter gross domestic product from any of the Group of Seven industrialised nations to show a 0.2 percent fall on the quarter, leaving GDP just 0.5 percent higher than a year ago.

The British GDP figures will be released at 0830 GMT.

Prime Minister Gordon Brown and Bank of England Governor Mervyn King both warned this week the economy was likely to enter recession -- usually defined as two successive quarters of contraction.

"The economic data has been telling us over the last couple of months that the negative forces in the economy have become more noticeable and more widespread," Sentance said.

"But also I think we've met a great deal of resilience and confidence about the underlying health of the economy, particularly in this region," he said in the northern city of Leeds, which has a large financial services industry.