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SO now we know why the Bank of England went as far as it did last week — and why talk of a further cut in interest rates is not pooh-poohed by anyone in authority.
Things, to put it mildly, are dreadful. But there's also a worrying sense today of a Bank that has been caught unawares and doesn't have enough in its locker to throw at the problem.
Yes, as the Governor Mervyn King says, “we have seen the biggest banking crisis since World War One” but it's more than a year since Northern Rock hit the buffers and it was a safe bet back then, that it would not be the last. The Governor is making excuses and there are plenty of City organisations where excuses are often regarded as simply not good enough. Only in August, don't forget, the Bank was forecasting “broadly flat” economic growth — this at a time when Bear Stearns had already capitulated and Lehman was on the ropes.
For the Bank to predict the recession may be short and sharp, welcome as that is, does not lift the spirit in the way it would once have done — there's no question the Bank has lost some of its kudos in the last few months.
That impression is reinforced by King's admission that monetary weaponry on its own isn't enough. He's virtually pleading with the Government to step in and use fiscal measures.
The pressure on Gordon Brown to act, to use the forthcoming pre-Budget report to make tax cuts is intense. What began life as the Treasury's forewarning of the main event in the spring has now become very important indeed. This year's PBR carries the hallmarks of being the most significant speech from a Chancellor in recent years.
Reader views (3)
'Its up to Brown' Oh **** He is one of the people responsible for getting us into this mess - no matter what he says about it being a global problem!!!!!!!!
Better to get rid of him now and bring in someone who actually knows what they are doing.
- Ian, Surrey, 12/11/2008 19:26
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Why is it that people posting to this website have been predicting doom and gloom since at least March this year, yet it took 7 months for the BoE to react? I am available for consultation...
- Nobby Clark, Perth, Scotland, 12/11/2008 16:48
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Short & sharp? Forget it. Long and deep more likely. The big question for the UK is just who do you think is going to continue lending huge sums of money to residents and govt? The pound is falling so drastically because money is leaving the UK and no one wants to lend further - check out today's numbers on money flows. By mid-2009 it will be the lenders dictating interest rates to the UK and then the trouble really starts. Just how the BOE or UK believes it can continue to dictate what it will pay for money it borrows to pay daily bills is beyond belief. Only way out - reduce spending and debt.
- Kr, Cap Ferrat France, 12/11/2008 16:01
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