June 12, 2009 / 11:11 PM / 10 years ago

Talk of green shoots premature says Blanchflower

LONDON (Reuters) - Talk of economic recovery is premature and Britain’s recession still has no end in sight, former Bank of England policymaker David Blanchflower told Reuters in an interview.

The U.S.-based academic, who left the central bank’s Monetary Policy Committee two weeks ago, was the first policymaker to spot the current recession and for a long time was a lone voice calling for interest rate cuts.

He was spot on. The economy shrank 1.9 percent in the first three months of the year and the Bank has had to cut rates to a record low of 0.5 percent.

In recognition of his services to economics and monetary policy, Queen Elizabeth will make him a Commander of the British Empire, the government said on Saturday.

“I am very pleased and honoured,” Blanchflower told Reuters. “My concern now is that this talk of green shoots is too early.”

A clutch of surveys in recent days have suggested that the worst may be over for the British and perhaps even global economy.

The National Institute of Economic and Social Research this week said the country’s recession ended in April and many economists are speculating the economy will have started growing again in the second quarter.

“I don’t agree with the NIESR,” said Blanchflower. “We are one year into this recession with no end in sight.”

“It is a time to be cautious,” he said.

His views are being echoed at the Treasury and the Bank. Chancellor Alistair Darling also warned this week that people should not get too carried away with signs that the economy was getting better.

There were still headwinds from the rising price of oil, the deterioration of the European economy and perhaps most importantly the lack of freely-flowing credit because of the continuing problems in the banking system.

Bank Deputy Governor Paul Tucker also said this week that it would not be until late autumn that the outlook would be any clearer and his colleague Paul Fisher said on Friday that while there were encouraging signs, caution should still be paramount.


Some financial market analysts, however, have been concerned that the huge amount of stimulus in economies around the world means that inflation could become a problem again unless the authorities start tightening policy soon.

Blanchflower dismissed the notion that inflation was about to rise.

“My guess is that the MPC will be writing a letter in October to explain why inflation is so below the target,” he said.

Under the Bank’s remit, Governor Mervyn King has to write an explanatory letter to the government if inflation deviates from the 2 percent target by more than a percentage point.

“It (CPI inflation) will be zero by the end of the year,” Blanchflower said.

Even more worryingly, the huge rises in the jobless so far may be only the tip of the iceberg.

“We are going to see some horrendous unemployment numbers. People don’t seem to understand this,” said Blanchflower, in a labour market expert.

Reporting by Sumeet Desai; editing by Stephen Nisbet

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