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The Bank of England's monetary policy committee, which sets interest rates, is due to meet this week. It says a good deal for the febrile atmosphere in the markets that the growing pressure from business is on the Bank to arrive at a decision tomorrow rather than wait for Thursday, its usual day for the announcement - and to make a cut of a percentage point instead of a quarter or a half of one per cent. Some economists have called for still deeper cuts.
It might seem like an about-turn for the Bank to cut rates at a time when inflation rates are rising - and by far more than official figures suggest. The Bank's remit is simply to control inflation. But the major cause of the price increases is not spiralling domestic consumer demand but the increase in fuel and food prices, driven by international factors. The chancellor, Alistair Darling, has quite rightly taken a dim view of potentially abandoning the Bank's anti-inflation remit just as the going gets tough, but in these circumstances, there is a good case to be made that cutting interest rates would not be an inflationary stimulus. About half of the country's mortgage payers have their rates linked to the base rate, and the move would benefit them directly.
Meanwhile, the chancellor is, as we report today, at the centre of a row about his meeting with heads of the major banks last night. Today some of the banks involved rejected the suggestion that they had gone to him, begging bowl in hand, for an injection of fresh capital. Indeed, some now suggest he is using a financial crisis for political ends. But it is certainly true that Mr Darling is poised to make a decision on injecting fresh capital into Britain's banks.
Recapitalisation could be a way of returning confidence to the sector, where instability is fuelled by the sheer unwillingness of banks to lend to each other.
The move would lead to a dramatic increase in potential taxpayer liability but increasingly, it looks like a realistic option. It would, most sensibly, take the form of governments acquiring a stake in banks' equity, in the form of preference shares which would put them ahead of other shareholders if things go wrong. On the bright side, this would allow the Government to take a share in bank profits if and when matters improve. The drawback for shareholders is that the issue of more equity will inevitably depress the share price.
Mr Darling is also in talks with his european counterparts over co-ordinating policy towards the banking sector. A concerted approach to base rate cuts across europe would be more helpful than central banks acting alone. Another option under consideration is for governments across Europe to guarantee up to €100,000, or £77,000, in bank deposits. Here, Government safeguards for up deposits of up to £50,000 guarantees the savings of 98 per cent of depositors. Out in the real economy, the British chamber of commerce has declared that Britain is already in recession. The chamber's third-quarter survey of 5,000 businesses suggests that sales and orders in both manufacturing and services have steeply declined - in services, to levels not seen since the recession of the early nineties.
Demand for labour has fallen, which will, the organisation suggests, lead to a loss of between 300,000 and 350,000 jobs over the next two years. Quite apart from the human cost, it will reduce the tax take, thereby narrowing still further the Government's scope for its optimistic spending plans. For struggling firms, a cut in interest rates would probably be the most constructive move the Bank of England could take.
New airwaves
One of the most difficult problems faced by rescue workers in the wake of the 7/7 bombings was that it was impossible for police and ambulance workers underground to communicate effectively with above-ground controllers. That difficulty has, mercifully, been resolved now that the £140 million Airwave network has become operational. Emergency staff will be able to remain in contact with their colleagues anywhere on the network. Londoners are safer on the Tube as a result.
