The Bank of England governor Mervyn King yesterday admitted that the UK entered a recession in the middle of 2008.
Stunned by the slump, the former champion of the struggle against inflation said: ‘We are certainly prepared to cut the bank rate again if that becomes necessary.’
The city now expects at least a 1% rate cut next month, which will further devalue the pound against both the euro and the dollar.
Now in the camp of those who regard rampant inflation as the lesser evil, King added that the 20 per cent devaluation of the pound against the US dollar would after all help exports.
He however hastened to caution that if the devaluation of the pound sterling went too far there would be inflationary consequences.
His comments came after the number of people out of work in the UK in the three months to September soared by 140,000 to 1.82 million the highest in 11 years.
The unemployment rate rose to 5.8%, up from 5.4% in the previous quarter, according to official figures.
The number of people claiming the Jobseeker’s Allowance rose by 36,500 to 980,900 in October – the highest monthly increase since 1992, while the pound sterling fell further on international markets against both the dollar and the euro.
Sterling declined to $1.5226 from $1.5426 at the previous close and its high point of $2.08. It also fell to a record low versus the euro at 82.15 pence.
Faced with this crisis, King was forced to admit that ‘following the failure of Lehman Brothers, the most serious banking crisis since the outbreak of the First World War reduced the supply of credit to the real economy, and, in some cases, led to a cessation of lending altogether. Confidence has been badly affected. All this will restrain demand looking into next year.’
King admits that the present crash is more serious than the 1929 crash, which led to the depression, the rise of fascism, the hungry 30s, and the second world war, but will not spell out the consequences.
He limited himself to saying that ‘The central projection is for output to decline over the next year, so that four-quarter growth falls further in the near term. That is markedly lower than the projection in August, reflecting the impact of the banking crisis on credit supply and the sharp falls in confidence in the real economy.’
Such is the depth of the developing slump that the Bank now expects inflation to decline to 1% by 2010, below its 2% target.
This expectation however excludes the likelihood that repeated rate cuts will create the conditions for the biggest run on the pound sterling ever, resulting in sky high interest rates as well as galloping inflation.
It also excludes oil prices rising once again, even more powerfully, as a result of a renewed war danger in the Middle East and the Gulf, and/or the Opec cartel sharply cutting production.
King knows that capitalism is skating on the thinnest of thin ice with the crisis actually worsening by the hour. He is reduced to hoping that something will turn up.
The TUC leaders were reduced to appealing to the government to bail out the whole of the crisis-ridden capitalist system for the workers.
Derek Simpson, joint general secretary of the Unite trade union, called for a programme of government intervention.
Tony Woodley, joint general secretary of Unite pleaded: ‘A triple spectre is haunting our people this winter: Redundancy, as the “credit crunch” spreads throughout industry; rising prices as fuel, food and utility bills soar; and repossession, as people are forced to hand their homes back to the banks.’
However, the capitalist crisis cannot be reformed or regulated away. Its crisis must be resolved through a socialist revolution, which will consign this bankrupt system to the dustbin, and bring in a socialist economy planned, not to make profits for a few, but to satisfy people’s needs.