MPC member urges big rate cuts

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Professor David Blanchflower - who has often been the lone voice on the Bank's Monetary Policy Committee (MPC) for cuts in the past year - said his fears of recession were coming to pass as economic growth stalls.

The MPC has voted to hold rates unchanged at 5% for the past four months as inflation soars to more than double official targets.

But in a sign of the growing tension on the committee, Prof Blanchflower said: "To sit and worry about inflation expectations and what is going to happen to those, rather than worry about the fact that the economy is going to go into a recession seems to be misguided."

He described the Bank's latest forecasts of flat growth in the coming year as "wishful thinking" and predicted large falls in output.

Prof Blanchflower hinted he would be calling for rates to be cut by more than 0.25% at the MPC's meeting next week.

He added: "The way to get out of it is to act, by interest rate cuts and fiscal stimulus and other things to try to help people who are hurt through this.

"Sitting by doing nothing is not going to get us out of this and hoping that a knight in shining armour will come and lift us out of this is optimistic in the extreme."

He warned that two million people could be unemployed by Christmas as the slowdown bites - an increase of more than 300,000 on the 1.67 million unemployed between April and June.

Official inflation is currently at 4.4% and set to peak above 5%, but Prof Blanchflower said: "The question is what's going to happen in prices ... 18 months down the road and the answer is inflation is going to plummet like a rock."