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Bank insider urges deep rate cuts Darling backs Bank's rate policy
(about 2 hours later)
The current financial crisis may be more far-reaching than even the 1929 crash, a Bank of England policymaker has warned. Chancellor Alistair Darling has reiterated his support for the Bank of England in its fight against inflation.
Professor David Blanchflower is a member of the Bank's Monetary Policy Committee (MPC), and has often been a lone voice in urging rate cuts. Despite the global financial crisis, he said there was no reason to change the Bank's main goal of price stability.
Now he has said big interest rate cuts are needed to avoid a deep recession. But there was "discretion about the horizon over which inflation is brought back to target", he said in a speech.
Later, he told the BBC the Bank was acutely aware it not only had to target price rises, but also had "to look at what is going on in the wider economy".
Earlier, Mr Darling had used a speech in the City of London to reaffirm his support for the Bank of England, which sets UK interest rate policy independently of the government.
He said: "The global challenges we face today are no reason for changing the remit of the Bank of England. The objective, price stability, is the right one. The means of achieving it, by inflation targeting, is right too."
However, he said that while inflation in the UK would come down to the government's 2% target, there was also discretion about the time period during which price rises were curbed.
'Deep recession'
Meanwhile, the current financial crisis may be more far-reaching than even the 1929 crash, a Bank of England policymaker has warned.
Professor David Blanchflower - who has often been a lone voice in urging rate cuts and is a member of the Bank's Monetary Policy Committee - said big interest rate cuts were needed to avoid a deep recession.
"If rates are not cut aggressively, we do face the prospect of a relatively deep and long-lasting recession," he said.
UK rates are at 4.5%, after the Bank cut them by half a percentage point earlier this month.UK rates are at 4.5%, after the Bank cut them by half a percentage point earlier this month.
The cut was part of a co-ordinated move with both the Federal Reserve and European Central Bank (ECB).The cut was part of a co-ordinated move with both the Federal Reserve and European Central Bank (ECB).
On Wednesday the Fed cut its key rate further, to just 1%. On Wednesday, the Fed cut its key rate further, to just 1%.
"My view remains that interest rates do need to come down significantly - and quickly," Prof Blanchflower told an academic audience in Canterbury.
"If rates are not cut aggressively we do face the prospect of a relatively deep and long-lasting recession."
'Synchronised downturn''Synchronised downturn'
His comments follow those recently made by Bank of England governor Mervyn King and Prime Minister Gordon Brown that the UK is probably heading towards recession.His comments follow those recently made by Bank of England governor Mervyn King and Prime Minister Gordon Brown that the UK is probably heading towards recession.
And Prof Blanchflower said international financial problems could turn out to have long-lasting repercussions.And Prof Blanchflower said international financial problems could turn out to have long-lasting repercussions.
"It is even possible that this event may turn out to be more significant than the 1929 crash which primarily involved bank failures in the United States," he said."It is even possible that this event may turn out to be more significant than the 1929 crash which primarily involved bank failures in the United States," he said.
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"The current difficulties in financial markets are more global in nature and more comparable to what happened in the First World War.""The current difficulties in financial markets are more global in nature and more comparable to what happened in the First World War."
He also said a range of surveys of UK economic activity had shown a marked downturn since last summer.He also said a range of surveys of UK economic activity had shown a marked downturn since last summer.
"It is not sufficient to consider the data month by month until it emerges that the UK is in recession."It is not sufficient to consider the data month by month until it emerges that the UK is in recession.
"I believe this trend has been apparent for some time. The synchronised downturn in so many business surveys should have led us to realise sooner that the UK economy was entering a recession.""I believe this trend has been apparent for some time. The synchronised downturn in so many business surveys should have led us to realise sooner that the UK economy was entering a recession."