(Sept 27): Deutsche Bank AG’s chief economist said he expects the UK to enter a “deep and long” recession, as the Bank of England (BOE) plays catch up to control inflation.
“We’re thinking in terms of a recession that will be deep and long,” David Folkerts-Landau said in a Bloomberg Television interview. “That’s the price we have to pay for financial stability and getting on the right track.”
Folkerts-Landau said the BOE is two to three percentage points behind where it should be, and it would be a “little risky” to wait until the next scheduled meeting in November to make a move. Still, he said he thinks it’s more likely that the pound will climb back to US$1.15 than hit parity.
“The BOE has been late in raising rates and in too small amounts,” Folkerts-Landau said. “Rates have to go up significantly.”
Folkerts-Landau said he applauded the “conviction” of the UK government’s moves and thinks tax cuts are necessary, but he questioned the timing.
“Unemployment will go up significantly, and it will be a painful recession,” he said. “But I do not believe there is a way around this.”