Leading Article: Prepare now to lower interest rates

MONETARY COMMITTEES propose, the markets dispose. Just as the worthy economists on the Monetary Policy Committee of the Bank of England start their two-day deliberations, Wall Street has chosen to go into sharp reverse - dragging the UK

FT-SE index behind it.

It is a timely reminder to the noble economists that this time their decision on interest rates is important. And not just because of the growing plight of British manufacturing industry. All the evidence is that service industries and the small company sector are also beginning to suffer from high interest rates and a strong pound. If you add to this an American- led fall in the equity markets, then you are talking of serious recession.

It may be that these fears are exaggerated. Short-term falls in Wall Street have been seen before, only for renewed highs to be achieved only a few months later. But this time there is a real feeling that the Wall Street reverses represent two important factors that will affect us all.

One is that the impact of the Asian crisis is now working backwards into Western exports and US growth. The second point is that the latest fall comes in the wake of a growing sense that stocks are seriously overvalued by the current market boom

Time was when these issues could be regarded as the arcane considerations of rich investors. But wemust learn that markets do control all our lives, and that a fall in shares at this stage could have dramatic consequences on everything from pensions to house prices.

The Monetary Committee can no longer afford to see its task solely in terms of UK inflationary pressures. Simply to hold interest rates may no longer be enough. The Bank has to start preparing itself to pull them down rapidly if the evidence of recession mounts over the next couple of months.