Leading article: Another worrying sign of the times

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The Independent Online

The Bank of England cut interest rates by a quarter of a percentage point this week, the second easing of monetary policy since last December. Some of the largest mortgage lenders have announced they will pass on the cut to their mortgage borrowers by early next month. By the looks of things, borrowers are sorely in need of the respite.

The number of people whose homes were repossessed last year has risen by 21 per cent. Some 27,100 homes were taken over by lenders after their owners failed to keep up repayments. And the number of mortgages in arrears rose by 8.6 per cent compared with 2006 to 73,400. The repossession rate is not as extreme as the Council for Mortgage Lenders had forecast and it is still considerably lower than the numbers in the early 1990s when there were about 80,000 repossessions a year. But this is still the highest figure since 1999. And when one considers that economic growth last year was a healthy 3 per cent, the fact that there were so many repossessions inevitably causes concern. What will happen when growth slows, as it has been projected to this year by the National Institute of Economic and Social Research?

There are other worrying forces coming into play. Banks are curbing lending because of the credit crunch. Householders are facing higher energy bills and food costs. The Bank of England's quarterly inflation report to be released next week is expected to show tight conditions. All this will impede the ability of borrowers to meet their mortgage repayments, with troubling consequences for the broader economy.

It is a gloomy backdrop against which Chancellor Alistair Darling will present his first Budget next month. The slowing housing market and the declining growth rate would have been bad enough on their own. But Mr Darling must also account for the weakening of the public finances and £100bn of liabilities linked to Northern Rock added to the Government's books.

Pretty much everyone agrees that Gordon Brown's sustainable investment rule of keeping the national debt below 40 per cent of GDP has been broken. Mr Darling will doubtless argue that this was because of exceptional circumstances and that these liabilities will be temporary. This is a debate for another day. But in the meantime, no amount of Government spin can conceal the fact that our economy is looking a good deal shakier at the moment than at any stage over the past decade.