LONDON (Reuters) - Bank of England Monetary Policy Committee member David Blanchflower warned on Wednesday that the major pain of rising unemployment has yet to be felt in the economy and said those calling for more stimulus were right.
Blanchflower said that while inflation was not a big concern right now, a major worry was that global demand and global trade were contracting sharply, pushing unemployment up.
“Those leaders pushing for a substantial fiscal stimulus are right,” he wrote in a commentary in the Daily Telegraph.
“We have yet to feel the full pain of rising unemployment. This will be the next big problem for policymakers, and it is one we need to fix now.”
Blanchflower, an outspoken academic who had long warned that recession was coming and interest rates should be cut aggressively, said the jobless number in Britain was “likely to breach the three million mark by the end of this year.”
He dismissed concerns that already tight public finances would not allow more room for substantial stimulus.
“Economists have so far been almost totally wrong about the likely breadth and depth of the recession, so why should we believe them now?,” he wrote.
Blanchflower’s comments appeared to contradict Bank of England Governor Mervyn King, who warned last week the government’s burgeoning budget deficit meant it needed to be careful about new fiscal stimulus plans to boost the economy.
He suggested various measures targeted specifically at youth unemployment — which he said would be “much deeper and longer-lasting” — including exempting the low paid from paying National Insurance contributions and raising the school leaving age to 18 immediately from the current 16.
“Such measures will be expensive, but the cost of not tackling the rise of unemployment may well be much greater,” he wrote.
Reporting by Kate Kelland. Editing by Chris Pizzey