>David Blanchflower: spending cuts could lead to recession | Business | guardian.co.uk


David Blanchflower David ‘Danny’ Blanchflower has repeatedly described the public spending cuts as the ‘greatest macro-economic mistake in a century’. Photograph: David Moir/Reuters

Former Bank of England policymaker David Blanchflower today warned that the UK economy is in “desperate danger” of slipping back into recession and the government’s planned spending cuts will make matters worse.

His comments, which come two days before the government sets out £80bn of spending cuts, are at odds with the views of 35 business leaders, including Marks & Spencer chairman Sir Stuart Rose and BT boss Ian Livingston, who have written an open letter in today’s Daily Telegraph to express support for George Osborne‘s cuts. They say there is “no reason to believe” the chancellor’s plan to eliminate the structural deficit within four years will undermine the economic recovery.

The 35 also warn that Labour’s plan to spread deficit reduction over more than one parliament would leave the UK almost £100bn deeper in debt by 2014/15 and increase the risk of interest rate hikes.

Blanchflower rejected this analysis, saying the business leaders “are not economists. It’s a terrible, terrible mistake. The sensible thing to do is to spread [the cuts] over a long time”.

He has repeatedly described the public spending cuts as the “greatest macro-economic mistake in a century”.

“Clearly you have to deal with the deficit, but there is no economics that says you have to deal with it in a week or a month,” Blanchflower said on Bloomberg Television. “You have to be mindful of the data and if the data turns down, which it has, you have to adapt.”

He added: “The last thing you do in a recession is make things worse.”

Blanchflower also said the Bank of England appears to be the government’s “only back-up plan,” but that additional quantitative easing may not work fast enough to help the economy.

The businessmen’s letter was drawn up by Lord Wolfson, the Conservative peer and chief executive of Next. In the letter, signed by Asda chairman Andy Bond, Gordon Frazer, the managing director of Microsoft UK, and Carphone Warehouse chairman Charles Dunstone, the business leaders write: “Everyone knows that when you have a debt problem, delaying the necessary action will make it worse not better. The cost of delay is enormous, and would result in almost £100bn of additional national debt by the end of this parliament alone.

“In the end, the result of delay would be deeper cuts, or further tax rises, in order to pay for the extra debt interest. The cost of delay could be even greater than this. As recent events in some European countries have demonstrated, if the markets lose faith in the UK, interest rates will rise for all of us.”

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