Blanchflower warns of 'horrible' things to come

The Bank of England policymaker who last year correctly predicted the current surge in unemployment and deep recession yesterday warned that the British economy may not recover this year, and repeated his view that unemployment is likely to climb above the 3 million mark. He said the rising jobless figures show "the taste of something horrible" to come.

David Blanchflower, an independent or "external" member of the Bank's Monetary Policy Committee, in effect rubbished the Bank's own forecasts for growth that were published in its Inflation Report last month. The report pointed to the probability of a recovery in economic activity and a return to positive growth by the end of this year. Now Mr Blanchflower says that "there are plausible arguments to say this will not happen".

The IMF said last week that the UK economy would decline by a massive 3.8 per cent this year, followed by a further contraction of 0.2 per cent in 2010, one of the worst performances among advanced economies.

Mr Blanchflower believes unemployment and the apparent timidity of policymakers in the face of the crisis are the main obstacles to reversing that catastrophe. "Job creation needs investment in infrastructure, with particular emphasis on shovel-ready projects that can be started quickly," he said.

In response to the Confederation of British Industry's assertion that the "alarming" state of the public finances left the Government no room for an additional "discretionary" fiscal stimulus in the Budget, due on 22 April, Mr Blanchflower said: "Fine, but what are we going to do about unemployment?"

Official figures released last week showed the number of people claiming jobless benefits rose faster last month than at any time since at least 1971, while the number of people out of work passed 2 million for the first time since 1997. Most independent economists believe the total will peak at between 3 and 3.5 million by this time next year. Should the jobless total exceed the post-Second World War peak of 3.3 million seen in 1984, during Margaret Thatcher's premiership, it would be acutely embarrassing for ministers.

Mr Blanchflower added: "Forecasters in a recession tend to be overly optimistic ... The worry is that any forecast we do have of unemployment or output, [it is likely that] we've undercooked it."

Nor did he draw back from highlighting the political consequences of rapidly lengthening job queues in the run-up to a general election. "We're all in this, we're going to have to do something about it. In six months' time it's going to be the biggest issue in every constituency," he warned.

Thus far, the plethora of business and banking support initiatives announced by the Treasury, the Bank of England and the Department for Business have failed to stem the loss of jobs in the economy. The deprecation of sterling – which has seen more than a quarter of its value lost on the international exchanges since mid-2007 – has been of no help to the jobless, argued Mr Blanchflower.

"I think the decline in the exchange rate has not been generating jobs in manufacturing. In fact, they have been plummeting," he said.

As to the policy of quantitative easing, or printing money, recently implemented by the Bank of England, Mr Blanchflower agreed that he had voted for it, and pointed to the fear of powerlessness among policymakers at the Bank. "The greatest fear of all is that you have no real tools at all in the area of disinflation ... We've got to get ourselves out of that. We've got to do whatever is necessary," he said.

Mr Blanchflower is due to retire from the MPC in June. He will be replaced by David Miles of JP Morgan.