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Blanchflower almost quit MPC over unheeded crisis warnings
20 Apr 2009David Blanchflower considered quitting his job at the Bank of England because his colleagues were too slow to deal with the recession.
The US economist nearly stepped down from the monetary policy committee last summer when his warnings about the extent of the economic crisis were ignored.
The revelations in a two-part edition of Channel 4's Dispatches starting tonight are a major embarrassment for the Bank and its Governor Mervyn King.
It is also bad news for the Government just two days before Alistair Darling delivers the Budget. The Chancellor will be forced to admit he underestimated the depth of the recession. Blanchflower said matters came to a head in August last year when the Bank published an optimistic report that did not even mention recession.
He said the report was “based on wishful thinking”, adding: “I decided a severe recession was coming and that the report was just completely wrong. I kept thinking: Am I wrong, am I wrong, and if I'm so wrong then I ought to just quit.'”
Asked if he “seriously thought about resigning”, Blanchflower replied: “Yes.” He started voting for interest rate cuts in October 2007 to combat the slump.
However, he was outnumbered month after month by the rest of the MPC, and the Bank only started cutting rates aggressively a year later. Said Blanchflower: “I was becoming increasingly of the view that something deep and nasty was coming and I felt that if that was the case then we really needed to get ahead of things. And I felt that we weren't. I felt that we were behind.”
The Government and the Bank have consistently claimed that the collapse of US investment bank Lehman Brothers last September was the moment the economy plunged into crisis.
But Blanchflower said it should have been clear recession was coming far sooner than that. Sir John Gieve, who was deputy Governor at the Bank when the crisis started, also admitted it was slow to react to the collapse of Northern Rock.
Reader views (3)
Where were you DB when you needed to raise rates much more quickly after 03/04/05? You have always advocated low rates so you were not exactly sticking your neck out then either!
- Jf64, London, 21/04/2009 08:58
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If he saw the problems impending due to massively foolish lending, he should have been pressing for interest rate increases, surely, to damp the fire down? The committee's remit was to set rates based on government figures that gave a falsely low picture of inflation: all financial pages were telling us this, so they must have known they were dealing a bent deck. We don't pay these people for the quality of their hindsight: any of them could have resigned or spoken out, but didn't.
- Mdj E10, london uk, 20/04/2009 22:07
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But he didn't
- Shallotman, Basildon, 20/04/2009 16:46
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