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Friday, 3 August, 2001, 13:11 GMT 14:11 UK
Lord Lawson warns of recession
Lord Lawson of Blaby
Lawson: Boom and bust cycle continues
Britain is heading for recession, according to former Chancellor Nigel Lawson.

Lord Lawson, who held the reins at the Treasury when the stock market crashed in 1987, was speaking after the Bank of England announced a surprise cut in interest rates.

We are about to have a recession and that is something which increasingly something the financial markets are reckoning

Lord Lawson
Former chancellor
The downturn could be made worse, he added, by the false security of Chancellor Gordon Brown's claim to have ended the cycle of boom and bust.

The UK's biggest mortgage lender, the Halifax, said on Friday the cut in interest rate from 5.25% to 5% would not stop economic gloom hitting house price rises.

Still boom and bust

Lord Lawson told BBC2's Newsnight on Thursday: "I think the chancellor is very much mistaken in saying that the cycle of boom and bust has been eliminated.

"I think if people do think the cycle has been eliminated that is going to lead them to be incautious, imprudent, maybe borrow excessively and actually make it worse."

Mr Brown has made "no return to boom and bust" one of the mantras in his time at the Treasury.

Alan Greenspan, US Federal Reserve Chairman
Greenspan too predicts no end for boom and bust
But Lord Lawson argued economic history in every country showed the boom and bust cycle had always happened - a view advocated by US Federal Reserve Chairman Alan Greenspan.

"What is important, I think, is for those who are in charge of the economy not to be focusing exclusively on this, or even mainly on this," he continued.

'Focus on long term'

Instead, they should be concentrating on controlling inflation, which the Bank of England was doing "pretty well", and making sure the economy was efficient and performing well in the longer term.

"We are about to have a recession and that is something which increasingly the financial markets are reckoning, which is being seen in a number of ways now."

Labour MP Austin Mitchell
Austin Mitchell wants a 2% cut
The former chancellor, who as Nigel Lawson resigned in a row over Margaret Thatcher retaining Sir Alan Walters as her economic adviser, pointed to companies cutting capital investment and de-stocking.

"Sooner or later, consumers are going to start reining back," he predicted.

Exporters have pressed for interest rate cuts hoping the move would bring better sterling exchange rates.

Value of the pound

Some economists, however, question the conventional thinking that interest rates cuts can bring down the value of the pound.

Lord Lawson did not think it sensible for the Bank of England to try to influence the level of the pound.

"You cannot fine tune it very easily," he argued. "If you start trying to get sterling down, it can go down uncomfortably far.

"You can lose confidence in a currency very easily and its then difficult to build it up and improve it again."

'Cut is pathetic'

Labour MP Austin Mitchell, who has long argued for rate cuts to help manufacturers in his constituency, branded the cut "pathetic".

"We need a 2% cut to do anything at all," he told BBC News Online, arguing British interest rates were much higher in real terms than other advanced countries.

Mr Mitchell, chairman of the Labour Economic Policy Group, added: "My view is it's daft to say that we have the highest interest rates in the world and that's nothing to do with the fact that our currency is overvalued."

See also:

03 Aug 01 | Business
Property price rises start to slow
02 Aug 01 | Business
What the rate cut means to you
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