The problem is rooted in the money system. Fiddling around with interest rates is not going to solve the problem. All that lowereing interest rates does is create more debt so that those already in debt can continue to pay there interest repayments.

Alan Heaton, Fraankfurt, germany

Despite the numerous, and never ending, assertions made by the Government that the economy is developing healthily, it seems that such may be not the case. One only needs to tune into ministerial questions on BBC Parliament to be cajoled into thinking that in important policy areas, such as the NHS and housing, all is well. The reasons for why the economy has taken a nosedive were certainly forthcoming. Brown, in all probability, has been financing this country by overseas borrowing; it was stated some months ago that the national debt could be rising by as much as £1million every 4 minutes. Furthermore, by Brown selling much of the Britain's gold reserves, he has put the UK in tremendous financial instability, since the security against the repayments to be made in the future (as a result of borrowing) is diminishing. The remaining gold, which is in a less than satisfactory condition, cannot cover that "security gap". One also questions the extent of the Bank of England's independance

Marcin Roth, London, UK

Another fact, we have the lowest national debt to GDP ratio amongst the major European economies, below 40%.
Would any of you economists like to hazard a guess at the US debt to GDP ratio, that arbiter of intemperance?

Phil, London,

Did anyone else spot this? Amazing - I had to check twice.

She didn't mention inflation once.

Remind me: what's the MPC's sole remit in relation to interest rate setting.......?

And which direction is inflation heading?

Jay, Sandhurst, UK,

Why should our arrogant, morally and ethically corrupt, self serving and parasitic political masters worry about inflation - they and their buddies in the public sector have an inflation proofed pension awaiting them. Pity not yourself but your children and your children's children who will pay for such.

Politics not economics demands that the "feel good factor" is
retained. Get rid of Gordon & Co. and nothing will change.
The necessary termination of the credit binge will only happen when the politicians and their cronies can do nothing to avert it and by that time the country will be well on the way to purgatory.

Amen

Howard, Poole,

Now the cut has happened it will be the last gasp of the vast credit heap-see the lemmings spending in Oxford Street before Christmas, just as they were seeing sense-but of course that is what they wanted-to keep the crashcar going up the hill.

Alyson, London,

It is really shocking to see the way the UK economy is being run. From what I percive, the focus seems to be only for the short term and growth is being fuelled by credit.

- For how long will this continue?
- What will happen if unemployment increases and people cant afford to pay back credit anymore?
- Why is there so much relaince on credit and not on savings? If the BO England, increases rates to 10%, atleast then people will save, enabling them to spend and fuel the economy on a longer term.

The economy should be fueled by production, manufacturing, agriculture and services and not by consumerism.

The current state of the economy is like a tiny tourist attraction, where the only cash inflow is by people arriving for 2 months a year and nothing else. What will happen if tourists dont arrive next year?

What this country needs are real economists, one with guts and vision for long term growth and prosperity.

Thimmaiah, Maidenhead, UK

Sure, think on the bright side. This helps to maintain the status quo and the created wealth in those nice property developer people....and all those honest people working for an honest days' pay. They are that nice that they even give out money to people anonymously.....so that they could not possibly expect anything in return... Admittedly the monies may not go to charities or any other well-deserving group ..... but close enough ? Here in NI, the possibility that the son of one of the Chuckle Brothers could even be one of those beneficairies for those nice developers.

Tommy, Belfast,

Why the hyperbole with the cardiogramme? What's your point? The interest rate reduction increases the gap - the market decides the LIBOR rate and they're not playing ball.

Jonathan , Farnham, UK

I just dont get it.
We have an old school labour chancellor / prime minister.

Why are you expecting moral hazards to be avoided?

Of course he will protect house prices at all costs.
Of course he will allow money supply to run rampant.

Debts will be inflated/devalued away.

The savers will be punished to save the debtors.

Dominic, Manchester, UK

I thought that
(1) The Bank of England was independent. Northern Rock proved that false with King being overruled.
(2). That the Bank's prime task was to control inflation. How does that square with a rate cut with prices rising everywhere except housing

K Wellls, Bognor Regis, England

I Keith is certainly right in that there are feedback loops involved within an individual market's behaviour. However, the other school of engineering that needs to be involved here is Information theory, and in particular the behaviour of information flows in large networked systems. It's provably impossible to regulate such systems from a central point, which is probably why these government interventions always do such much harm to these very imperfectly understood systems.

The real issue here is expecting to regulate a slow time period system (years/decades) in a few weeks. This mess has been years in the making, and what the LIBOR rate delta is actually saying is that system forces now dominate - whatever those in government might like to think about the situation.

What is the sound of an invisible hand clapping?

jacky mallett, Los Angeles, California

you forgot to include the 4th force of growth. imigration is starting to reverse with the pound dropping and fast. Polish and other eastern europeans are heading for the exits fast, its just not worth working for low pay in the UK anymore.

tomas schoenberg, prague, czech republic

Sorry you all seem to miss the point.

Briatins economy is actually DYING not growing, all that is growing is money supply and credit.

Britain has followed the U.S. credit system for its economy for too long and the result of the hunger for consumer goods is like a cancer.

The true problem is that Britain has lost its economic mind, too much of what is bought is made elsewhere we export jobs and as a result we export the future of the country.

All this rubbish about it is cheaper to but from 3rd world countries is often a false thing.

Tthe prices do not really fall and the cost benefit is often so marginal in benefit that I wonder why it is done. To say we have a social responsibility to help develop is false too. Charity begins at home.

The first thing to do is get genuine manufacturing jobs back in Britain, reduce the interest rates to investments in manufacturing by huge tax credits, and get skills back, not thugs wandering the streets with no meaning to their life.

John Rabid, Guangzhou, China

The pound is going the same way as the dollar.

Pedro Tam, london, u.k

Remind me - did Swervin' Mervyn do exactly as told to do by Anatole last time , on the 19th April THIS YEAR , under the Headline " Is it too late to tame the inflation monster ? "

Keeldar, BIRMINGHAM,

The BoE will be held responsible for the inflation figures and possible upward momentum in house prices. It just shows how artificial it all is..............
I pity the poor savers and the elderly who think they have enough to see them through......
You can't keep reflating the economy as soon as their is a sign of a much needed correction. We may be avoiding a downturn but at some considerable price. Money is becoming completely worthless.

Pedro Tam, london, u.k

Surely the banks are reaping what they have sown. As the BBC showed some time ago, borrowers were actively encouraged to self-certify their income falsly declaring huge earnings. If only 1000 houses were oversold by this factor, the resultant chain of people able to buy over the odds would run into thousands, fuelling the price boom until the banks were forced by this disclosure to shut the stable door.

Graham, St.Austell, UK

I agree with your assessment of the British economy with regard to the driving forces.If credit dries up consumer spending will plummet ,which will in turn affect the industry and finally the economy.Our economy is not insulated from events occurring in the USA- any event happening in the USA seems to affect our economy more than foe instance the Euro zone or Germany.The BOE (MPC) needs to be more proactive in their interventional role so that they are not seen to be firefighting as was the case with Northern rock and the rate cut today which has had to be lobbied by the industry.It is a measure in the right direction but which has come a bit too late to boost consumer confidence during the festive period.

DERICK MULUBWA, BRISTOL, ENGLAND

julia, you clearly are an economist - but you are not thinking like a politician....they would rather trash the currency (slowly of course) and defer the pain of a correction until somone else's watch. Stoking inflation through interest rate cuts "eases" the pain on borrowers at the expense of the rest of the economy.

Sadly we need a recession to purge the excessive credit from the system and make us all tighten our belts. The longer it is put off the worse it will be. It is crazy to think people are in a panic with interest rates below 6%.

Steve, London, UK

Controlling interest rates does not really work. The recession has started, the spending in the high street is slowing not because of interest rates and the cost of borrowing, but because of the cost of fuel. The cost to ordinary people to travel to work has increased to a point of a lot less to spend, worrying about further inflation costs to come on heating, food, manufacturing, travel, transport and of course council tax which will pass on their cost to the public. Cutting interest rates will not stop these increases. Only by reducing the tax on fuel will prevent inflation from getting out of control and restore confidence in spending and prove inflation and the future is under control

john jones, coventry, UK

Ha ha ha. This is such aweful economic analysis it's laughable. Kaletsky is one of the crudest Keynesians out there. His advice should come with an economic health warning; inflation and stagnation is all it offers. What we desparately need sound money, not the policies of Robert Mugabe.

Chris, Bristol,

Anatole, I agree with your conclusion but not all your points. Your first point ignores affordability and supply, your 2nd ignores the 100s of failed banks in the US, your 3rd is spot on, the 4th point is all about the economic cycle as is the final point.

To all those who're saying Inflation will rise with a cut in interest, that is what the BoE LIKE you to think, that they're controlling inflation using interest rates, and it's got nothing to do with the low inflation environment the World has been in for the last 10 years, plus increasing competition in the retail sector in the UK.

Oh no, it's the interest rate that controls the price of imports as well, and not the absurdly low cost of labour in the BRIC economies.

I agree interest rates have a minor role to play in averting inflation, but only because they affect the exchange rate. The way prices are spiraling and credit dwindling though is going to create bigger problems regarding growth.

Justin, Nr. Lincoln, UK

The proportions on your graph are skewed. A compressed x axis and an enlarged y asix as you have gives a misleading impression that interest rates are more volatile than they actually are. A deviation of +/- 1 % (y axis) over ten years (x axis) hardly merits the cardiogram epithet.

Paul , Strasbourg,

The UK sees over two thirds of its imports coming from other EU countries. This year alone, the British Pound lost 10% value against the Euro. This will worsen with the next rate cut. Don't be fooled if the pound is strong against a worthless currency such as the dollar. The rate cuts will only worsen the situation. Any action that is aimed at temporary reliefs will worsen the situation. And any worsening makes a soft-landing less probable.

MikeK, Bearwood,

A MODEST PROPOSAL

Drop inflationary sterling.

It is a major liability now with disastrous inflationary consequences which will lead to serious economic, social and political dislocation. Join the Euro and enjoy 4% interest rates and a central bank that manages economic affairs with stability.

Rebalancing the economy requires a move away from the "Anglo-Saxon" model with the dominance of the City in our economic affairs and a dependence on the dollar.

Commodities like oil and food would be better traded in Euro's than in the disastrously deflating dollar.

Furthermore, turn tenants into owners (at a price they can afford - namely their rent) and stop speculatively lending to non-resident owners.

John Collins, Bromley, Kent

Next year judicious savers will see BOGOF replaced by BOGAFF -- buy one,get another four free. There will of course be an adjustment to the price of one.

JONTY , Nottingham,

Excellent analysis AK.

However, I get fed up with reading ignorant rubbish from the bloggerati, such as the drivellings of B Shah of Stanmore. He writes, "The British produce nothing of significance". UK industrial production amounts to some USD600 billion. How is that insignificant? It's something like the fifth largest producer of industrial goods in the world.

Graeme Burton, London, UK

George Steiner!

Now really. What do you mean? We export buy to let. Spain, France, Turkey, all have 'benefitted' from this. Soon they will have truly low birthrates like we do...

Pete Balchin, Solicitor , Bristol, UK

Isn't it about time we questioned whether our infatuation with the potential dangers of inflation has blinded us to the dangers of recession?
Yes, the high-inflation period through the 70s and 80s was horrendous in many respects, but we coped with major social and economic changes. And the high inflation helped my parent's generation pay off their mortgages with no worry about negative equity. Indeed it helped them achieve wealth I can only dream of matching with the millstone of static income and rising bills that is around my own neck.
Low inflation sounds good in economic theory, but the reality is continuous pain, as the headline inflation is mostly in products I cannot afford to buy, and the effective inflation rate in my taxes, transport and energy costs is almost into double figures. What kind of insane economics demands that rises in these costs be met with higher interest rates too?
How the cure for pain be more pain?

Tony, Bristol, England

Spot on, the purists will always want minimal inflation, but they are forgetting the lessons on the 1930's. It is imperative that confidence is maintained in the economy. Why well because as a Country that trades and makes most of its money out of financial activity, confidence is the major attribute that persuades the world to deal with us!
Stagflation (now there's a word from the Wilkson /Callaghan era) is something that must be avoided at all costs. The Fed have got it right and the BoE, really must keep doing the same as they are - keep the economy going and growing. Today's cut probably wont be enough and as a nation we should be expecting, even demanding, interest rates at similar levels to the ECB. The higher comparitive levels over the last few years have been based on an artificial construct, that overvalues the efficiency and productivity of the UK's companies and individual economic endeavour.
We need to get real, value our efforts correctly - global ecomony, global value.

David Evans, Frinton-on-Sea, UK

I had an email from LloydsTSB at 14.00 today, 06/12, telling me that the interest rate on the banks online saver account was reduced by 0.25% on 03/12/07. Any improvement on that in the "Jumping the Gun" stakes? This economy will implode, with devastating results, over the next 2 years and lead to annihilation at the polls for Gordon.
Conservative governments during my lifetime, I'm 57, have only ever inherited a calamitous economy from Labour and then spent too long putting it right before lemmings give Labour the power to mess it up again. The big difference this time is that Labour have messed up bigger and better than ever and the Conservatives are no longer around to sort it out.
Before anyone bleats on about dear nasty Margaret and what she did to our wonderful industry, try convincing yourself that British Steel would still be around and able to compete with India and that British Leyland would be competing with Toyota or Skoda. As for our shipyards and South Korea, please!

Terry, Radstock, England

I am not an economist but I do know we have massive indebtedness in the UK and house prices at record high against earnings yet if anyone suggests the slightest slow down in all this, there is a mad rush to throw more money onto the fire. That suggests to me that we are so addicted we dont know how to stop.

julia, london,

From Chidren and the unlearned... how well they can discern the economy but not the times.

There is no third millenium there is only the time of the end.

Hugh E Torrance, London, England

Your arguments don't sound right - the LIBOR (or the 'market' interest rate) being significantly higher than the base rate in the past few weeks is not in itself a sign that the economy is heading into disaster zone. We know that the main reason for this anomaly has been a severe liquidity crises with banks holding on to funds they would have otherwise lent in the interbank market.
This will not go away until 'confidence' in the credit markets is restored - and the latter will not happen with the BoE
slashing interest rates alone. The Bank needs to intervene in the money markets and pledge an unlimited amount of funds (as the ECB and Fed have more or less promised) to banks that require them.
There needs to be a calming of nerves in the financial system in general, not a pointless cutting of rates alone, basing them on a spurious (and largely pessimistic) correlation between interest rate differentials and an economic slow down

Udaiveer Anand, London,

The Bank did not target asset prices on the way up, why should it on the way down? Whilst we cut and Europe don't--just watch stirling and therefore inflation

R James, Clifton, UK

Official economic data and forecasts mean nothing in Britain because officialdom doesn't have a clue how many people are in the country or what they're are up to. Some things however are apparent:
1 The BoE's independence is a mirage. The decision to pump money into Northern Rock was political & made by a Prime Minister and Chancellor who were merely guessing at solutions. Their guesswork has resulted in unlimited sums of British public funds being pledged to repay the reckless loans of foreign bankers.
2 Throughout Charlatan Brown's chancellorship credit was recklessly abused - blatantly, and on such a scale that the entire frenzy amounts to a colossal, unprecedented, ruinous fraud.
3 Brown's public sector expansion is the greatest example of sustained wastefulness and viciously counter-productive spending in the entire peacetime history of the world
4 Without exception, any reform of anything attempted by Gordon Brown has ended in embarrassing, excruciating failure

Colin Gibbons, Twickenham, YK

The British produce nothing of significance and growth is primarility driven by debt-financed consumption. The simple fact is that the lenders of this supply of moolah are not going to lend anymore. The impact of this will be an implosion of the British economy as the debt-fuelled consumption binge now starts to devour the very children it fed. As house prices crash, mortgage debt looks unsustainable, credit losses increase, lender refuse to lend save at much lower levels, consumption decreases, economy goes down the drain. Run, run away now!!

B Shah, Stanmore, England

The British economy is built on nothing more than a pile of growing debt. Say it Mr Kaletsky. Say it ! The breakdown will be monumental. And the funniest thing is that it will be a Labour (Socialist ?) government that brought it on us. Run away ! Run away !!

RJA, Nottingham, UK.

We as a country import: food; fuel; consumer goods.
To the producers of these, they frankly dont care if demand in the UK tomorrow reduces, they will still raise their prices as world deman/ raw material prices rise. Hence the chinese attitude "Thats what it now costs, thake it or leave it". If BoE thinks tinkering with UK interest rates has any effect on the main inflation drivers, think again.

Martin, Slough, England

Nice theory, shame about the facts, Libor has barely moved on this announcement, in fact I believe the cut was anticipated in advance, leaving the gap between the BoE rate and LIBOR even wider. Thankfully it appears the market is more mindful of inflation than the bank and in case you thought it wasnt a problem- OPEC today refused to increase production, putting more upward pressure on oil prices. This rate drop is just a head burying excercise which is just going to make the pain even worse next year. Although Northern Rock will probably be grateful for the rate drop, its going to make little difference to the average mortgage payer, it will be interesting to see if the banks adjust their rates and by how much-dont expect a full 0.25% cut ladies and gents!!

David C, Chelmsford, UK

What major economy? The British economy is not major. Where are the cars, the computers, themachines, the machine tools, the integrated circuits, the cameras, the electronics, the motrcycles, the idustrial robots, the watches, the optical products and so on? The British make mainly hot air.

George Steiner, Lachine,

As house prices rose the Government moved the BoE targets from RPI to CPI so it would not be able to influence rising house prices. When house prices fall, how long do you think it will be before the Government tells the BoE to move from CPI to RPI ?

Your answers on a postcard, to Gordon Brown, No. 10 Downing Street, London.

Keith, Ashford,

Unfortunate I guess that you wrote this piece before the Royal Bank of Scotlands optimistic statement this morning that led to a 5% rise in its share price. That does seem to shoot a hole through the principle arguments in your opening paragraphs.

The key question really is whether base rates will have much if any impact on LIBOR. If not, then cutting base rates at this point is psychological rather than pragmatic.

MarkS, Leeds,

INFLATION, INFLATION, INFLATION. Come on you BOE Monkeys. Do your job rather than making the easy decision. 5.75% is not particularly high. If rates drop along with increase cost of goods, oil and food, then the last hing we want is lower interest rates.
Anyway, what about the people who manage their finances responsibly, why should we not be looked after ? I am sick of people being bailed out of their stupid mistakes after taking loans or mortgages that they can never hope to afford. People need to learn to take responsibility for their own financial actions.

LOOP, Derbys, UK

The BOE should be trying to control inflation. If they start pushing rates down as fuel and oil etc rise upwards things could get really messy.
As stated in the article, the LIBOR rate has risen above the base rate anyway.
As for house prices, I don't see that a 1/4 or 1/2 percentage point drop will make that much difference. Fact is that house prices are over valued, lenders will not pass the full benefit on anyway, and the LIBOR rate is currently operating to a different tune to the base rate.
Lets not forget, historically a base rate of 5.75% is still pretty low. Anyone over 30 should not raise an eyebrow when rate are below 7% as far as I'm concerned.

LOOP, Derbys, UK

We have huge problems in this country and most of this has been caused by Brown and his policies. He rides unchecked, and has been doing so for the last 10 years given the feckless Blair and no significant challenge to either of them The day of reckoning is now here and we are all going to pay for this.I hope that the BoE has the sense to lower interest rates, but we will still have issues of debt and default and still have a profligate Labour government that is absolutely intent on its own survival above that of the country. The Labour government and indeed party has no real leadership or clear vision. We will also have significant numbers of unemployed immigrants in this country because the jobs will no longer be there. We have to have the courage to tell them to leave, otherwise, the UK will become a bloodbath. And this is no easy prophecy: it is the way things will be.

Karen, London, UK

Good analysis. The British economy was being viewed through rose-tinted glasses for too long. 2.11 versus the Dollar? Please! Throughout last year and early this year, the stock market was treating all news as good news and ignoring the writing on the wall with subprime and slowing growth. The idea that the market is an efficient pricing mechanism is a fallacy! Gains, gains, gains..oooh massive crash!!

Kv, Britannia,

'Finally, and most importantly, the US Federal Reserve Board has been much quicker to respond to the credit crunch than the Bank.'

Yes Anatole - that's because the US already had falling house prices, a huge sub-prime problem, and slowing activity. The UK has only just started to record falling house prices, and GDP growth in Q3 was 0.7% - hardly weak.

The MPC would have been highly misplaced in cutting rates at the same time as the Fed did. No doubt you would have been the first one to condemn them if they did.

At least have some consistency in your opinions.

Tina, London, UK

There is a link missing here btw rates, inflation and exchage rates.

Suppose a rate cut does indeed happen, sterling will collapse leading to higher inflation and rate increases.

The housing market has to collapse, it is as simple as that. And rates need to stay level.

Emma, London,

If we are arguing that the BoE should cut rates to prevent a house price crash should we also have been arguing that the BoE should have been raising rates over the last few years to stop the house price bubble occurring in the first place?

The BoE should stick to its mandate - controlling inflation. Inflation is already quite high (RPI 4.2 CPI 2.1) so a rate cut would be irresponsible.

Tom, London, UK

Cutting the base rate would not be designed to reduce the gap between it and LIBOR. It would be to reduce the LIBOR rate which affects the mortgage repayments of many householders.

John, LONDON,

Keith of Ashford,

Keh? What's an engineer? or suss suss scientisst?

What planet are you on? Give me an estate agent or buy to letter any day - far more use to the 'economy'

Pete Balchin, Solicitor , Bristol, UK

The Bof E base rate has not considered the risk factor nor true, honestly stated inflation for as long as I can remember.
Rate decisions have been based on false, understated and politically massaged data.Probably today will be more of the same.I do not think there is enough courage in the MPC to oppose the pressure from the government and vested interests. Independant--what a laugh!
God help the UK next year when imported inflation really kicks in.
Mervyn and his pals will really be in trouble--and so will Mr and Mrs
average UK citizen . To day will look like the good times.

nic, royan, france

First, Britain's housing market may be vulnerable but past rises mean there is a cushion for a correction, some would argue a welcome one; secondly, british banks are generally well capitalised and in no danger of collapse (unless Anatole thinks we are about to eschew banks altogether and put our money under the mattress); thirdly, you make a fair point about the public sector; hence the current stringent wage increases which will place HMG in an exquisitely tricky position wrt the unions; fourthly, GBP has weakened vs EUR over the past year; fifthly in the US the markets (ie the banks) seem to be determining monetary policy - we surely don't want to go there, do we? And Sixthly, as has been pointed out, the BoE has a clear price stability (ie inflation...) objective with which cutting rates wouldn't necessarily be compatible.
Other than that, v interesting article.

Alan, London, UK

The rate must go up or stay the same. We are getting 6.6% on three month lending- why would banks do this if the rate should be 5.5%?
There seems to be no money in the market, supply and demand. MPC reducing rate would be akin to telling the tide not to come in today, as we have enough water. Rates would surely not fall as that would not eliminate the credit risks already in the system, and the bad debts.
As many have said , credit is a monster thatneeds controlling, justlike inflation of course.

iang, Loughborough, UK

Just the consequences of Brown's disastrous handling of the economy over the past ten years. Never have economic factors been so benign as over the past ten years. Low interest rates world wide, nothing to do with handing so-called independence to the Bank of England. Inflation kept down in some areas due to low cost products from Asia. What has Brown done, created the most indebted country in Western Europe and for the first time in our history our, total annual GDP exceeds the level of debt. The economic boom has been a complete mirage and lowering of interest rates will only out off the day of reckoning and encourage more borrowing. No country can survive on the borrowing and debt levels that Brown has created

chris, woodbridge, suffolk

The Oxford English Dictionary definition for 'hike' : "a sharp increase, especially in price"

Could someone please tell me what you would call a 1 or 2% interest rate increase?

If the minimum rate the BOE can increase is 1/4% then that must be a 'slight' or 'small increase'

John E, Malta, EU

My girlfriend, a nurse just got a 1.9% payrise. This is a cut in real terms as RPI is currently over 4%. Many people are in a similar position, pay rises not keeping up with inflation. I'd like the BoE to focus on the inflation target when setting interest rates, I believe this is what they are supposed to do. As far as I can see the pressures on inflation going forward are all on the upside so interest rates should be going up if they have to go anywhere. I made the same prediction in 2005 when the BoE cut interest rates and inflation subsequently went over it's target and Mervyn King had to write to the Chancellor. A cut today raises the real risk of a collapsing pound, more imported inflation and a runaway inflation spiral which should be avoided at all costs.

Richard, Poole, UK

The current crisis should not call into question the wisdom of the Bank of England's independence. It should have more authority over the regulation of banks in order for its policies to take more effect. As for the current question whether the base rate should be changed, the answer should be yes, it should be increased.

A Doty, London,

The question is how did Britain get into this position? For years Brown and his scribbler friends in the media have been telling us how robust and solid the British economy is. Yet here we are with the same scribblers pleading on bended knee that Britain is in a fix and please pretty please give us the pain killing jab we crave. Those few voices who said the economy was no more than a huge one way bet on the markets, were shouted down. It demonstrates how cockeyed the economy has become, or rather that the old disease of boom and bust was never cured. Cutting rates is of course no cure; but, as the consequences are (we are told) dire, I suppose it must be done for the same reasons we propped up doomed industries in the past. This time it's doomed debtors, namely Labour voting get-rich-quick houseowners masquerading as mortgage martyrs.

John Walter, Bonn , Germany

Mervyn King and the BoE probably learnt their lesson on Black Wednesday in 1992 when most of the city's young movers and shakers were still in short trousers. The global finacial markets were beyond its control in 1992 and intervention now would be futile. The ECB and Federal Reserve are now experiencing their own Black Wednesdays and finding that, despite pouring in billions to ease liquidity problems, the credit market is still frozen over.

The BoE, despite all the critisism, also realised that allowing a UK high street bank to collapse would totally undermine public confidence in the UK banking system. They still had the means to prop up a UK bank though they can no longer influence global financial markets.

Keith, Ashford,

Well done Anatole - you managed to write an article telling the MPC what to do without once mentioning the word that entirely defines their job: INFLATION.

With food, fuel, imported goods from China and (according to Anne Ashworth and Paragon) rents all soaring with an inflation rate of around 10%, I'm very glad that I have limited exposure to Sterling (except for that pesky pension).

Looks like several years of zero nominal house price growth accompanied by 10% increases in the cost of living year on year. And the pound in your pocket won't be worth a pound when you buy a coffee in France any more.

T Sparks, Limerick,

Absolutely right Scott, London. If this writer/economist were to tell me it was raining I would go outside to check. Has he never heard of stagflation? Interest rates have been 'politically' held down for far too long and due to that fact alone need to be sharply raised. Yes, I know there are many other forces at play.
Frankly I don't really think it matters much what the politically biased BOE do, the proverbial penny has finally dropped with the banks and they have severely tightened their lending criteria already. A policy from which they should never have deviated unless they had been politically cajoled and luckily protected by benign worldwide conditions which simply ran out of time..... and liquidity.

Ripsnorter, Malaga, Spain

I'm with MB, Edinburgh and Keith, Ashford: The link between the LIBOR and BoE is hanging by a thread. If economic data shows that the BoE rate has been set too low then the thread will be cut completely and the BoE will lose all credibility.

It also risks further inflating the bubble that has been caused by a BoE base rate that has not factored true risk in for a long period of time.

A cut now not only delays the hangover, it will deepen the depth of the recession when it does come.

Edwin Thornber, Bucharest,

If, indeed, there is a problem, then do what some other countries do: have two interest rates, a business rate and a personal rate. That will control public borrowing while leaving business unaffected.
In the longer term, whatever happened to the concept of businesses and the public living within their means ? Borrowing money on the never-never is not a human right, not yet anyway.

Terry Dell, Weybridge, UK

The central bankers have only themselves to blame for this unnecessary credit crisis. They panicked post 9/11 by lowering interest rates too far and then leaving them there for too long. Even within the MPC's remit there was no real need to do so. If only they kept a cool head we would not have such a massively unbalanced global economy today.

cww, suffolk,

Doesn't the graph say cash is mispriced and that interest rates should be higher. Won't dropping the bank rate make the spread worse. How is lowering interest rates increase the amount of cash? Won't increasing interest rates attract savers - so more cash to lend. And isn't inflation tempered by an increase.

Scott, London,

This is one of your most myopic articles yet. The debt binge has to stop. Cutting rates and adding fuel to the fire will only lead us to a depression. The low interest rates of previous years were the cause of this mess and people used their houses as ATM machines. Large personal debt for consumption will ALWAYS lead to decreased future consumption once the credit dries up. Why not write a more useful article on the banks desertion of risk control and peoples inability to limit their borrowing. The financial mismanagement of this situation is criminal. You could see it coming from a mile away. But as long as the numbers on the surface looked good no-one cared. Now the bill has arrived at the table everyone is trying to squeeze out the toilet window. At the end of the day somebody has to pay but it is never those who should.

Edward, London,

There is a strong argument that the MPC should leave interest rates where they are in order to remove the cancer of BTL landlords from the housing market.
Until very recently housing finance reports in the media were dominated by i) smug BTL landlords who were going to create huge pension pots from rentals and capital gains
ii) people doing essential jobs like teaching and nursing unable to afford houses across large swathes of the country.

Interest rates should remain high until house prices adjust sufficiently for a correct balance to be restored between the interests of these two groups. It will benefit the country if this happens.

Malcolm Williamson, Welwyn Garden City, UK

It simply isn't the job of the BOE to sustain unrealistic rises in house prices.

Michael Clarke, Windsor, Berkshire

One little word missing from this article: inflation.

Bruce Robertson, Brighton,

An entire article on the MPC's interest rate decision without one mention of the word inflation?

If people are unhappy with $90 plus oil now, then how are they going to react when the pound declines based on an irrational 'media pressure' rate cut?

How are prudent savers going to react when their purchasing power desolves right before their eyes? Moral Hazard anyone?

Narco, Leeds,

I am surprised by some of the main newspapers who are just spreading baseless rumours against Northern Rock i.e. Treasury has drafted a proposal for commons and House of Lords to Nationalise Northern Rock. Treasury has a right to do that any way and they must have plan to do so if they see public money is in danger. But at this stage the Newspapers like "Telegraph" spreading different rumours are only as wether they have something against NR or they are playing in the hands of Spread betters. My request to them is "Please" let NR alone to expand its options and don't spread baseless rumours as it is not giving any benefit to the British public or Tax Payers but only to spread betters.

Jamal Gurwara, Ilford Essex, UK

The spread between LIBOR and the BoE base rate is due to the market perception of heightened risk - how will a lower base rate help to narrow this gap exactly?

LIBOR is higher because risk is perceived by the market to be higher and banks don't trust each other. No amount of BoE rate cuts and political machinations and pressure will change that. The credit crunch will take some time to unwind: the banks engaged in a 5 year binge of lending and borrowing and derivative investment and will now have to face the consequences, as will the consumer who requires debt to meet their living expenses.

MB, Edinburgh,

An interesting article Anatole.... But no mention of inflation. How can you argue a case for or against rate cuts without even considering the impact to inflation?

The Bank are between a rock and a hard place - but they cannot pander to the credit-hungry at the expense of the rest of the nation.

You argue that the Fed has acted swiftly and correctly... yet the dollar is weaker than any time in recent memory.

If the Bank cuts rates today Sterling will bear the brunt and the inflation genie will be let loose - it will be impossible to reign in for years.

Rob Upham, Basingstoke, Hampshire

Isn't it about time we just let free market theory take it's course. A prolonged period of low interest rates has created an asset price bubble and the market needs to correct itself. Tinkering just prolongs the agony. Look at the long term trends and where we are now, things have to come back to earth eventually. The only real question is whether we want this to happen sooner or later.

A free and unregulated market was allowed to reach un-realistic heights. Now it's time for the correction. A free market is a turbulent market, as long as you allow markets to be un-regulated then it will be prone to large and un-controllable swings.

If their are any engineers out there a free market is like an under-damped system that over-shoots and under-shoots as it goes up and down. The correct amount of regulation would produce a critically damped system where the undershoots and over-shoots are minimal. Too much regulation produces an over-damped system that responds too slowly.

Keith, Ashford,