Ex-BOE Panelist Blanchflower Says Budget `Certain' to Lead to Double Dip
Former Bank of England policy maker David Blanchflower said the spending cuts the government plans in its emergency budget tomorrow “look certain” to push the U.K. back into a recession.
“You can’t just decimate the public sector and assume the private sector will step into the hole,” Blanchflower said in an interview on Bloomberg Television’s “Countdown” in London today. “The danger now is we’re certainly going into a double- dip recession. I think that’s absolutely certain given what’s coming.”
Chancellor of the Exchequer George Osborne is set to outline the deepest spending cuts since the 1970s in the budget to rein in the record deficit. He said yesterday he’ll raise taxes on banks and savers and cut welfare spending and that the “pain” of the squeeze will be spread over the Parliament’s five-year term.
The budget comes six weeks after the Conservative-led government took office. During the election campaign, the political parties argued over the potential impact of spending cuts on the economy. Blanchflower said that “quite a lot” of the recovery is being driven by stimulus measures and he wants to hear a “plan for growth.”
“When you pull the stimulus away, the question is, ‘what does the private sector do?’” he said. “Cut and cut and cut is a crazy thing to do. We’re repeating lessons of history. This is what happened in the 1930s. The danger is it drives us into recession.”
While the U.K.’s deficit widened to 11 percent of gross domestic product in the last fiscal year and Fitch Ratings said the U.K. needs to speed deficit cuts to guard its top credit rating, Blanchflower said the U.K. government doesn’t have to rush the plan at the expense of the economy.
“The U.K. is demonstrably not Greece,” he said. “We have a sensible fiscal regime, we have our own central bank, we have an exchange rate. The Greeks are completely different.”
David Blanchflower is a contributor to Bloomberg News.