David Blanchflower last night highlighted deepening divisions on the Bank of England's Monetary Policy Committee by warning the UK was likely to tumble into recession if greater cuts in interest rates did not come soon.
He told the David Hume Institute in Edinburgh that he was "particularly concerned" that the UK "exhibits broad similarities to the US experience".
The US has been driven into, or at the very least to the brink of, recession by a housing market slump stemming from massive default on sub-prime mortgages in America.
UK residential property values have shown more modest falls but Blanchflower, who noted the 2.5% drop reported by Halifax for March was the biggest monthly decline since 1992, claimed last night that UK house prices could fall by about a third over "two or three years" without more aggressive action on rates.
Blanchflower, speaking only hours after Bank of England Governor Mervyn King reiterated inflation concerns and signalled he was in no rush for the nine-strong MPC to cut rates further, said: "We are probably in the grip of world forces that are greater than most people realise. Forecasting is thus very difficult at such times. I believe more action is needed to prevent the UK falling into recession...
"Monetary policy in my view still remains restrictive currently, and we need to take action to loosen policy sooner rather than later."
He added: "We need to look through the short-run hiccups in inflation that will occur over the next few months. Our main priority now is to ensure we conduct monetary policy in such a way that the UK doesn't slip into recession, causing us to significantly undershoot the inflation target. It isn't too late."
Blanchflower, who has consistently been the most dovish MPC member and voted for a half-point cut when rates were reduced from 5.25% to 5% earlier this month, said "the downbeat news from the (UK) housing sector now seems to have started to spread to the consumer".
Detailing similarities he sees between the UK and US, he said: "For some time now I have been gloomy about prospects in the United States, which now seems clearly to be in recession. I believe there are a number of similarities ... which suggest that in the UK we are also going to see a substantial decline in growth, a pick-up in unemployment, little if any growth in real wages, declining consumption growth driven primarily by significant declines in house prices. The credit crunch is starting to hit and hit hard."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article