Arctic convoy veterans at the Soviet Memorial - 

MERVYN KING, Governor of the Bank of England, last Wednesday told a press conference that Britain is already in recession in the largest global economic crisis “since the outbreak of the First World War” – implying this is a bigger crash than 1929.

 And soaring unemployment figures published the same day tell the same grim story.

 The number of people now out of work in Britain has risen by 140,000 to 1.82 million in the three months to September, bringing the unemployment rate up to 5.8 per cent from 5.4 per cent, according to Government figures. This is the biggest increase in 11 years.

 The number of people claiming Jobseekers’ Allowance also rose by 36,500 to 980,900 in October, which is the largest increase since 1992. Economists are predicting that two million people will be unemployed within a few months.

 King told the media that “policy makers” are ready to lower the basic rate of interest “as low as needed” to prevent the current recession from “fuelling deflationary pressures”. The Bank of England report had said that inflation may slow “well below” their two per cent goal in 2009.

 King was asked if he was prepared to take the rates as low as zero and replied that they “are prepared to cut bank rate to whatever level is necessary” to make sure that inflation hits the bank’s targets.

 He claimed that a worldwide fall in commodity prices, especially oil and gas, has ended any dangers of too much inflation and replaced them with a threat of deflation.

 But in a brief aside he did mention that as far as Britain was concerned the falling level of the pound compared to other currencies could make goods in the shops more expensive.

 In other words, workers and pensioners doing their regular shopping will experience higher food bills while having to rely on the good heartedness of the petrol and domestic fuel companies to pass on the reduced commodity prices to customers. In the meantime the Government and other employers will be using the reduced inflation figures to try to cap wages.

 The Bank of England report also showed that the pound has reached a record low against the euro, fuelling speculation that Gordon Brown may soon find that parity between the pound and the euro would be a good time for Britain to join the single European currency.

Sterling dropped to 82.38 pence per euro, extending its fall this year to 10 per cent. Against the dollar, it dropped to the lowest since August 2002, falling to $1.5202 and has lost a quarter of its value since January.

 The Bank of England has already cut the benchmark rate twice in the last month, reducing it by 1.5 percentage points last week to a five-decade low of three per cent.

 The slump has worsened in the past month, with unemployment rising and house prices falling at the fastest pace since the early 1990s and manufacturing is in its worst recession since the early 1980s.

 The Bank of England’s forecasts – which tend to err on the optimistic side – show that the British economy will contract through 2009 and inflation will go below the Government’s one per cent minimum unless it cuts rates further.

 King was asked if he had underestimated the risks facing the economy and replied: “The world has changed” since the collapse of Lehman Brothers in September.

 The number of manufacturing jobs fell to 2.86 million, the lowest figure since records began in 1978. TUC general secretary Brendan Barber said: “The signs are that redundancies are coming even faster since these figures were collected. Countering unemployment must be public policy priority number one.”

 ING economist James Knightley said that the last recession in the early 1990s saw 31 consecutive monthly rises in unemployment.

 “We are likely to have plenty more bad news on the labour market to come,” he warned. He said the number of those out of work would “push towards 2.5 million in 2010”.

 Derek Simpson, joint general secretary of the giant Unite trade union, called for a programme of Government intervention.
 
 “Only urgent and widespread action by Government to protect jobs and homes will help hard-pressed families through the worst of this global turmoil,” he said.

 And GMB general secretary Paul Kenny said: “The Chancellor is right to spend money to keep people in work rather than spend money on unemployment benefit.”
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Bankers rule