The UK’s austerity measures after the 2008 recession were disastrous and have extended the severest economic trauma in a century, according to British economist and former member of the Monetary Policy Committee (MPC), David Blanchflower.
He contrasted the UK with the United States, which took monetary action but did not pursue austerity.
GDP in the UK fell 0.2% in the final quarter of 2011, unemployment has risen and various surveys show a lack of confidence among industry. In contrast, GDP in the US rose 0.7% in the final quarter, unemployment has declined and manufacturing spending is increasing.
“In my judgement, this looks like a disaster,” said Blanchflower, who addressed a conference organised by ETF Securities in London.
He blamed consistently inaccurate growth forecasts for what he sees as policy errors by the UK government. In August 2008, the Bank of England denied there would be a recession, but Blanchflower showed slides based on data from the Office of National Statistics that show that UK output fell 7%.
He argued that “many features of 2008 appear to be repeating themselves”, such as low consumer and business confidence across all UK industries. Yet the MPC is predicting a return to 6% GDP growth by 2013, a forecast he claims is as flawed as the erroneous predictions made in 2008.
“Every time since 2008 that the Bank of England does growth forecasts, it’s been a joke,” he said.
Blanchflower charges the UK government and others of failing to understand that the 2008 recession was a one-in-a-century event. It was a mistake to talk down the economy and fail to safeguard lending to small businesses, he said.
He is almost certain that the MPC will announce another £75 billion (€90 billion) of quantitative easing after its February meeting with the potential for a further £500 billion to buy private sector assets, though the Bank of England governor, Mervyn King, is said to be opposed to this latter option.
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