Britain Faces Worst Slump in 60 Years, Darling Tells Guardian

By Caroline Binham

Aug. 30 (Bloomberg) -- The U.K. is facing ``arguably the worst'' economic crisis for 60 years, according to Chancellor of the Exchequer Alistair Darling.

In comments that contrast with those of Prime Minister Gordon Brown, Darling told the Guardian newspaper in an interview the downturn would be ``profound and long-lasting,'' and said he had no idea how serious the credit crunch would become. Brown has said he will unveil measures next month to prevent the U.K. economy from tipping into recession and bolster support for his ruling Labour Party. The Treasury confirmed the chancellor's comments

Official data this month showed the British economy recorded zero growth in the second quarter, while Bank of England policymaker David Blanchflower this week forecast two million people could be unemployed by the end of the year. U.K. consumer confidence stayed near a record low in August as the fastest inflation in a decade and falling house prices discouraged shopping, London-based research group GfK NOP said yesterday.

Brown has said Britain is better placed to weather global economic storms now than in the late 1970s, when it was bailed out by the International Monetary Fund, and in the early 1990s, when the pound was forced out of the Exchange Rate Mechanism that tied its value to other European currencies.

The government now has its ``work cut out'' to persuade voters that it deserves another term in power, Darling told the newspaper. He said ministers had ``patently'' failed to explain problems to the public.

`Huge Problem'

``This coming 12 months will be the most difficult 12 months the Labour Party has had in a generation,'' Darling told the Guardian. ``We've got to rediscover that zeal which won three elections, and that is a huge problem for us.''

The opposition Conservative Party's lead over Labour widened to 22 points in a YouGov Plc poll finished on Aug. 21, from 8 points at the beginning of the year.

The Bank of England kept the benchmark interest rate unchanged at 5 percent this month on concerns about inflation after the economy stagnated in the second quarter. Retail sales slumped to the lowest since 1983 this month, and house prices fell by the most in three decades, reports showed Aug. 28.

An index of confidence, based on a survey of 2,001 people, rose 3 points from July's minus 39, which was the lowest since the data began in 1974, GfK said. While sentiment was lifted by the Olympic Games in Beijing this month, the U.K. index has declined from minus 4 a year ago, the report said.

Blanchflower, who has voted to reduce interest rates at every meeting of the Monetary Policy Committee since October, has called for ``a substantial fall'' in borrowing costs, ``probably quite quickly.''

``I certainly think we are in negative growth now and I expect several further quarters,'' Blanchflower said in an interview with Reuters on Aug. 28.

Darling's comments on the economy ``are entirely consistent with his previous statements about the challenging times the U.K. is currently facing,'' the Treasury said in an e-mailed statement today. ``These are the same difficult economic circumstances that every other country in the world is having to deal with.''

To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net