Call made for UK interest rate cut

Britain needs an immediate cut in interest rates to avoid a prolonged recession.

One of the UK's monetary policymakers, David Blanchflower, has said the country risked at least a year of negative growth unless monetary policy was relaxed.

Mr Blanchflower told a newspaper: "It's not too late to stop it but we have to act now."

His comments came as a leading think tank warned that Britain was facing an economic "horror movie" and would struggle to avoid recession next year.

Ernst & Young's Item Club is forecasting GDP growth of 1 per cent next year, inflation to remain above the Government's target for the next 12 months, and a "substantial" increase in unemployment to the 2 million mark.

Mr Blanchflower who helps set interest rates on the Bank of England's Monetary Policy Committee (MPC) has consistently voted for interest rate cuts at this year's monthly MPC meetings, said: "I think we are going into recession and we are going into one right now. We will probably have three or four quarters of negative growth but the risks are to the downside."

He added: "Monetary policy has been far too tight for far too long. We can't just sit and do nothing as we have done for too long."

The economics professor is urging his fellow MPC members, who earlier this month voted to keep interest rates on hold at 5 per cent, to look through "the short term blip upward in inflation" and focus on the medium-term picture.

The cost of living index is currently running at 3.8 per cent, nearly double the Government's 2 per cent target, and is being driven by soaring oil and food prices. Bank of England Governor Mervyn King has repeatedly said his focus is on bringing inflation back down to target. The MPC last cut rates in April.

Mr Blanchflower said: "Our job is to focus on inflation in the medium term so we have to look through the short-term shock from oil and commodity prices."

The report comes after the Chancellor Alistair Darling revealed in an interview that the UK downturn would be more "profound" and last longer than he expected.

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