Bank's Blanchflower sees recession

By Sumeet Desai

LONDON (Reuters) - The economy is heading into recession and interest rates should fall to "well below" their current 5 percent, Bank of England policy-maker David Blanchflower was quoted as saying in a newspaper interview.

The arch-dove was quoted as saying in Monday's edition of the Guardian that the economy would probably shrink for as much as a year and policy-makers had to act now to bring down borrowing costs.

The Bank of England has held interest rates at 5 percent for the last three months after cutting them in April despite signs of a sharply slowing economy because inflation has nearly doubled the central bank's 2 percent target.

Blanchflower was the lone voice calling for a cut in interest rates in May and June. Minutes of this month's meeting will be published on Wednesday, but Blanchflower looks sure to have repeated his call for lower rates.

"I think we are going into recession and we are probably in one right now," Blanchflower told the Guardian. "We will probably have three or four quarters of negative growth, but the risks are to the downside.

"It's not too late to stop it, but we have to act right now. Monetary policy has been far too tight for too long. We can't just sit and do nothing as we have done for too long."

Blanchflower, an academic economist who lives in the United States, told the newspaper that the British economy could be in for a worse ride than even the American economy.

Both countries, he said, were facing the "biggest economic problem since the Great Depression."