WHEN Mervyn King joined the Bank of England as a non-executive director in 1990, interest rates in Britain were 15% and there was a serious risk that they would go higher.

Now he has taken over as governor, interest rates are 3.75% — a quarter of their 1990 level — and there is a serious chance that they will go lower. Indeed, King’s own hints last week were taken by the markets as pointing that way.

Had anybody seriously suggested in 1990 that we were facing a future with interest rates in low single figures he would have been thought of as dangerously eccentric. The average base rate for the previous decade was 12%. Excursions into single figures were rare and into low single figures unheard of. But that is where we are, and talk of a 3% rate is by no means fanciful.

King, who last week signalled his intention of becoming the “people’s governor” by taking the Bank’s message around the country, became chief economist in 1991 and deputy governor in 1998. It is tempting to attribute today’s low interest rates to the efforts of him and his colleagues.

While I bow to nobody in my admiration for Bank independence, and its superiority to every framework for monetary policy that preceded it, it is clear we are witnessing a global phenomenon.

Indeed, the only similarity between now and a decade or so ago is that then interest rates in Britain were the highest among leading economies. They still are, but at a significantly lower level; Britain’s base rate is 3.75% compared with the European Central Bank’s 2%, the American Federal Reserve’s 1% and Bank of Japan’s 0%.

Interest rates are at their lowest levels for half a century, and even this does not tell the full story. In the 1950s, interest rates were only one of many weapons for controlling the growth of money and credit. In Britain, there were direct controls on bank lending and hire purchase. Mortgage lending depended on how much the building societies could raise from savers. Capital controls restricted the movement of funds between countries. Today’s “control-free” environment makes the low level of rates even more remarkable. How much lower can they go? Two weeks ago I looked at how the Japanese economy had come to be locked into economic stagnation and deflation — falling prices — and concluded that monetary policy makers had been too slow to spot a dangerous bubble developing in the late 1980s, and too slow to react when it burst.

Some would say the first part of that criticism equally applies to Alan Greenspan at the Fed a decade later. But he and his colleagues were quick to react when the stock-market bubble burst, and have carried on reacting, most recently with last month’s cut in the Fed funds rate to just 1%.

Equally, though, the Fed, and for that matter the ECB and the Bank, might have expected the cuts so far would produce more growth than we have seen. The cuts by the Fed, from a rate of 6.5% to 1%, would, according to its own economic model, normally produce strong growth — well above 3% a year — and a big stock-market bounce.

In Britain, the Treasury’s simulations showed that cutting interest rates to European levels would significantly boost growth and inflation — one reason it said no to euro entry. Yet rates have halved from their peak level of 7.5% since Bank independence, without a boom. Growth in the first quarter, 0.1%, was the weakest for 10 years.

The Bank for International Settlements (BIS), the Basle-based central bankers’ club, noted in its annual report last week that “the global economy lost steam in the course of last year despite significant policy stimulus”.

It added that there were unusual features about the current cycle and cited developments in the “geopolitical, economic and financial spheres” that had held back growth. That’s a little opaque, even for a Swiss-based organisation. Decoded, it means the worries over global terrorism and Iraq, together with strains on the banking system, have prevented interest-rate cuts from being as effective as they should have been.

This leaves two possibilities. The first is that it is only a matter of time before economies explode into life under the impact of these interest-rate cuts, together with the fiscal stimulus — tax cuts and public spending — many countries are applying. This is what has hit the bond markets hard in the past few days. American policymakers, in particular, are leaving no stone unturned in their determination to ensure George Bush enjoys the pre-election boom denied to his father.