Cost of living crisis: Bank of England urged to cut interest rates to prevent recession ‘on a scale not seen since 30s’

The UK is set for a recession “on a scale not seen since the 1930s,” without major intervention from the Bank of England, a group of leading economists have warned.

In an open letter to the Financial Times, a former senior figure at the BoE is among those calling for a significant injection of “government-created money,” to avoid a “meltdown” of the economy.

The authors of the letter say that a combination of measures, including cuts to interest rates and nationalising energy supply, may be enough to “save us from the catastrophe currently awaiting us”.

This comes as the US investment bank Goldman Sachs has warned that rising energy prices could drive inflation as high as 22% next year.

Millions could lose jobs in coming months, economists warn

There is a “very high” risk of a recession which would cause millions of job losses and people losing their homes, unless the BoE intervenes, according to three leading economists.

They warn that as energy prices rise, leaving millions struggling to pay their bills and afford basic essentials, the resulting drop in consumer spending will have a major knock on effect on the retail, leisure and hospitality sectors.

The signatories of the letter expressed concern that the impact of energy price rises and interest rate increases on the wider economy are “being ignored”.

They wrote: “Many companies will fail. It is likely that millions of jobs will be lost. Mortgage repossessions and tenant evictions will increase.

“Public services in education, health and care will also be drastically impaired due to rising bills. The likelihood of recession on a scale not seen since the 1930s is very high.

“None of this is necessary. In 2008 and 2020 economic crises were averted using government-created money and the Bank of England’s quantitative easing process. Interventions on those occasions were of £150bn or more.

“It is quite likely that a further £200bn will be necessary in the coming year if the meltdown of our economy is to be avoided.

“Intervention on such a scale, coupled with cuts in interest rates, energy price reform, nationalising energy supply and investment in new technologies could save us from the catastrophe currently awaiting us.

“Not much else can.”

The signatories of the letter were a professor of economics at Dartmouth College and former member of the BoE’s monetary policy committee, David Blanchflower; Lord Sikka, Emeritus Professor of Accounting at University of Essex; and Richard Murphy, Professor of Accounting Practice at Sheffield University Management School.

The grim warning comes as the Conservative leadership election is coming to its conclusion.

Plans put forward to deal with the cost of living crisis by Liz Truss, widely considered to be the likely winner of the contest, have been described as “fundamentally unserious”.

While Truss has hinted that she could offer further direct support to households, she has for now only laid out concrete plans to cut taxes and pause green energy tariffs.