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June 1, 2009    

Former MPC member warns of rising unemployment and “false dawns”

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by Kay Murchie

David Blanchflower, the former member of the Bank of England’s Monetary Policy Committee (MPC), has warned that the latest green shoots in the economy are “tentative” and that unemployment in the UK will continue to rise.

Mr Blanchflower has been speaking to the BBC after his three-year term as MPC member came to an end after choosing not to renew his term. He is to be replaced by David Miles.

Mr Blanchflower, who is professor of economics at Dartmouth University in the US, warned in November 2007 that the UK may face a recession and has cautioned that “the worst of the downturn is not over and signs of improvement may be ‘false dawns‘.”

Speaking on BBC’s Radio 4, Mr Blanchflower, said “The thing I’m most disappointed by is that I was unable, in the early parts of 2008, to persuade my colleagues to vote along with me that we should be cutting rates earlier.”

“My strongest contribution was to see what had gone on in in the US, realise that recession was coming and call it earlier than others. My weakness was that we didn’t do this early enough.”

Furthermore, Mr Blanchflower believes jobless claims could rise by an average of 100,000 a month for the next 12 months and this will mean that the UK economy would remain “tough”.

In March of this year, Mr Blanchflower warned that unemployment may reach levels of 4 million.

In a bid to boost the economy, the Bank of England began aggressively cutting interest rates last autumn when they were at 5%. They currently stand at 0.5% - the lowest level since the Bank was established over 300 years ago.

The MPC is set to meet this week to discuss interest rates (which are widely expected to remain unchanged) but the Bank is expected to press ahead with its £125 billion programme of quantitative easing (also known as printing money) - a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital.

Finally, Mr Blanchflower believes consumer price inflation (CPI) will continue to decline and it is likely to slip below the 1% mark. CPI currently stands at 2.3%.

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