Former rate-setter turns on Bank

Mr Blanchflower chose not to renew his term at the Bank.

A former Bank of England rate-setter has criticised it for not spotting the recession and then not acting decisively enough to avoid it.

David Blanchflower reserves particular criticism for the head of the Bank, Mervyn King, in an article published in Thursday's New Statesman magazine.

He says Bank members lack the practical experience necessary to set policy.

The Bank of England said it would wait for the article to be published before deciding whether to respond.

Mr Blanchflower, made a CBE in the Birthday Honours list, correctly predicted the recession in the UK.

He argued for lower interest rates in the months running up to the downturn.

'Old iron fist'

"Clever as Mervyn King may be, he missed the crash and the subsequent recession, and hence, so did the consensual Monetary Policy Committee (MPC)," he says.

He says the committee, which sets interest rates, did not see the recession coming, even in August 2008.

"[The MPC] was hobbled by 'group think', or the 'tryanny of consensus'. Governor Mervyn King , the old iron fist of the Bank of England, with his hawkish views on rates, dominated the MPC," Mr Blanchflower says.

He adds that the Bank is full of theorists without enough practical experience of working within the real economy.

"Unfortunately, practical folk who knew how to spot and cope with banking crises were in short supply at the Bank of England.

"Instead, the Bank was full of mathematical modellers who had never seen the inside of a commercial bank or hedge fund," he argues.

Mr Blanchflower, who is professor of economics at Dartmouth University in the US, also says the UK economy is not out of the woods yet.

"The risk of a long lasting depression is not over. There have been some positive signs recently, and the worst may be behind us, but we should not get too carried away... money supply growth remains weak, banks are still not lending and mortgages are hard to come by."

E-mail this to a friend

Printable version