By Brian Swint
Dec. 11 (Bloomberg) -- David Blanchflower, the first Bank of England official to predict the recession, plans to step down in May after winning a year-long campaign to take an ax to interest rates.
Blanchflower, 56, called for rate cuts every month since October 2007, arguing that weakness in the labor market warranted a stronger response from the Monetary Policy Committee. While his push put him at odds with Governor Mervyn King, the economy is now contracting and the Bank of England has reduced the benchmark rate three times in as many months to a five-decade low of 2 percent.
“He’s a Cassandra,” said Neil Mackinnon, chief economist at ECU Group Plc in London and a former U.K. Treasury official. “The important thing now is that the MPC understands the severity of the situation. It would have been worse had they continued to bury their heads in the sand.”
Blanchflower’s decision to leave after his term expires will deprive the Bank of England’s nine-member board of its most vocal dissenter and a job-market economist at a time when unemployment is rising the most since 1992. Since October 2007, he voted against King nine times and was the lone rate-cut advocate on seven occasions.
“He deserves credit to take a view so much at odds with the rest of the committee,” said Michael Saunders, chief Western European economist at Citigroup Inc. in London. “To do that and be right: that’s an achievement. He would have prefered to have persuaded the others as well.”
Letter to Darling
Chancellor of the Exchequer Alistair Darling announced Blanchflower’s intention to step down yesterday, along with the appointment of Paul Tucker as the central bank’s deputy governor for financial stability. Blanchflower wasn’t immediately available for an interview.
“I have much valued the independence given to me as an external member of the committee,” Blanchflower wrote in a letter to Darling. “It is crucial that membership of the MPC fully represents a broad range of views.”
Blanchflower, an economics professor at Dartmouth College in New Hampshire, has commuted across the Atlantic each month since he took up his post in June 2006. He promised in an interview in March of that year to be a “free thinker.”
His research interests are less conventional than those of his colleagues. He co-wrote an article called “Money, Sex and Happiness” in the Scandinavian Journal of Economics in 2004 which said that “money does seem to buy greater happiness. But it does not buy more sex.”
Scottish Research
Blanchflower also revealed research in March 2007 that showed Scottish people are more unhealthy, unhappy and likely to kill themselves than those in the rest of Britain.
He said as early as November 2007 that the U.K. economy may face a recession, before any other member of the committee. King didn’t acknowledge that one was likely until Oct. 21 and Prime Minister Gordon Brown followed a day later.
Gross domestic product fell 0.5 percent in the third quarter, and King’s central bank now predicts economic contraction through most of next year.
“Above all, he was the one voting for lower interest rates early and history will prove him right,” said Stewart Robertson, an economist at Aviva Investors Ltd. in London, which manages about $230 billion in assets. “They should have listened.”
The Treasury will advertise for Blanchflower’s replacement, the government said yesterday in a statement.
“I felt this was about trying to do the right thing, I felt recession was coming,” he told the Guardian in an interview broadcast Nov. 27. “I’m very upset that I got it right. I mean in a way, I think it’s the winner’s curse.”
To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.
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