Gordon Brown said today that the recession now gripping Britain was unlike any others since the Great Depression, caused not by domestic economic mismanagement but by a "complete market failure" set off by the sub-prime crisis in the United States.As statisticians confirmed the UK's first recession since 1991 and the largest quarterly contraction in 28 years, Mr Brown - who spent ten years as Chancellor under Tony Blair before taking over as Prime Minister - said co-ordinated international action would be the key to lifing the global economy quickly out of the downturn.
And he insisted that he and his Chancellor, Alistair Darling, had had no choice but to commit billions of pounds of public money to shoring up the banking system because the "cost of inaction" would have been much greater.
"Every recession in the last 60 years in Britain has been caused by inflation, domestically generated, caused by wages getting out of control on some occasions, by interest rates having to rise," Mr Brown told BBC Radio 4's Today programme.
"This is a completely different type of event, as everyone recognises. This results from a global banking crisis. So America's already in recession. Germany's been in recession for some time. The euro area is in recession. It's a global financial crisis caused by irresponsible lending practices."
Mr Brown was speaking shortly before the Office of National Statistics announced that Britain's gross domestic product (GDP) had contracted by 1.5 per cent in the final quarter of 2008, a significantly higher contraction than economists had expected only a few weeks ago. That was the worst figure for a single quarter since 1980, during Margaret Thatcher's first term in office, when Britain's manufacturing sector was devastated, and presaged a similarly disastrous rise in unemployment.
The figure drove sterling to a 23-year low against the dollar under $1.36.
“Coming out of America in the next few weeks will be a major, major stimulus package that will help the rest of the world. Other countries in Europe are about to make decisions themselves about the future and I think that is very, very important as well,” Mr Brown said.“If for example China could create more domestic expansion itself, then the world would be going in harmony, going in tandem, to deal with ... what is a synchronised banking failure.”
Mr Brown declined to detail the level of taxpayers' exposure to the financial crisis through the multibillion pound schemes to bail out the banking sector, despite a call from the Treasury Select Committee for the Government to come clean. "Just think of the cost of doing nothing," he said. "No saver lost any money even though banks were in danger of collapsing all over the place in Britain. We stopped the banks from collapse."
David Cameron, the Tory leader Mr Cameron, warned yesterday that Britain could soon have to go to the International Monetary Fund for cash, repeating the action of James Callaghan’s Labour Government in 1976, because of the parlous state of public finances. But Mr Brown dismissed his comments as “ridiculous behaviour”, adding: "The situation in Britain is this: that we have low public debt, we have low inflation, wages are under control.”
He also lashed out at prominent investors such as hedge fund boss Jim Rogers, who have been giving dire assessments of the prospects for UK plc and sterling. “If you think we are going to build our policy around the comments of a few speculators who want to make money out of Britain then you are very, very wrong indeed,” he said. “The decisions we take about the future of the economy are based on what is right for Britain.”
Asked to identify the mistakes he made as Chancellor, Mr Brown said that economic policy had been focused on inflation. "We believed, rightly so, that we could get inflation down in this country and with low interest rates and a low inflation economy it could continue to grow.
"We also believed that there was a possibility of institutional failure in the banking and financial system so we did all sorts of exercises, simulation exercises. We had the FSA put in place - I think people recognise it's one of the best regulators, not one of the worst - but what we didn't see, nobody saw, was the possibility of complete market failure, that markets seized up across the world."
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