BoE's Blanchflower sees lower GDP, inflation risks ahead

Bank of England rate setter David Blanchflower painted an altogether softer picture on the outlook for the UK economy, saying that both inflation and growth are likely to come in lower than expected. "I believe there to be more spare capacity in the economy than in the central projection contained in the August Inflation Report, implying lower output growth and lower inflationary risks down the road and a somewhat lower probability of having to write a letter to the Chancellor," he said in a speech to businessmen in Wales. BoE governor Mervyn King will be required to write an open letter to the Chancellor of the Exchequer Gordon Brown if the annual rate of CPI inflation goes above 3.0 pct or falls short of 1.0 pct. The central bank is charged with keeping the rate at 2.0 pct. Blanchflower, who casted the lone vote against the rate hike in August also said that he believes the UK labour market will weaken. "I also believe we will see a decline in the employment rate and further rise in unemployment going forward because of the current composition of employment growth," he said He said the big rises in employment in the the public sector or even from self-employment like that of the past few years are unlikely. "At present, I see no evidence of any second-round wage effects from the recent oil price increases," he added.