THE BANK'S cut in interest rates was a pitifully inadequate response to the downturn here at home and the gathering crisis in the world economy. Yes, more cuts are likely, and these will give some cheer to homebuyers and small businesses. But even two or three on this scale will still leave Britain with the highest interest rates of any of the leading industrial economies. We urge a reduction that could make a difference. The Bank's experts are like generals fighting a new war with the strategy of the previous one. The danger now is not inflation. It is recession - and the Bank's display of caution pushes us ever closer.
The Financial Times
HAVING MARCHED base rates up to a peak of 7.5 per cent in June, the Bank of England retreated yesterday to 7.25 in a deepening gloom. The Bank's monetary policy committee expected in August that UK economic growth would slow next year. But it kept monetary policy tight to combat continued inflationary pressures. Now the danger is that over-extended western financial institutions will spread contagion, and induce a much more serious slowing down of the economy. The Bank was right to start cautiously to take pre-emptive action. But if a collapse of financial confidence were likely, taking some risks with inflation would be a lesser evil.
THE QUARTER percentage point fall in interest rates gives the impression of being neither a determination on the Bank's part to follow its course towards low inflation, nor an acceptance that the state of the British and global economy now demands lower rates. It is not clear what the Bank's strategy is any more: did the MPC decide to cut rates because its inflation predictions persuaded it the time was right, or because of pressure from Gordon Brown? It seems unlikely that they will be able to resist slashing rates further. Which is good news for manufacturing and the global economy - but if they believe that this is the right course, why not take the lead and do it now?
THE MONETARY Policy Committee has responded to the incipient global credit crunch with the first easing of monetary policy for more than two years. It is a step in the right direction, but the reaction of investors indicates that it may not be enough to restore the "animal spirits" of the financial markets.Reuse content