Clearly something is going to happen this year, all the financial and political indicators are negative. While the City is generally beneficial (especially to its members), it cannot generate the sort of solid long term returns that a competitive and diverse manufacturing base could, if we had one any more. The problem with finance is that it's basically easy. Yes, clever mathematicians can devise ever more complex 'products', but all they are really doing is playing variations on a set of simple themes around margins and timing. The price of entry to this market is a few years of training and customer confidence. The price of entry to manufacturing is knowledge, training, know-how, designs, experience, big capital investment and a quality work force with decent managers. I know which I would choose - and so do the Germans and French, to name but two.

Colin , Shrewsbury,

Kaletsky has only recently been panicked about the economy and wasn't demanding 50bp increases in 2003 or 2004 when interest rates were far too low- save of course that Brown wanted them low. If Brown had wanted a stable but slower growing economy he'd not have set the CPI at 2% far too high given its structure. For tjhose familiar with physics you'll be familiar with the behaviour of materials when under stress and their tendency to non-linear behaviour. That may well occur in the economy.
House prices have tripled in 10 years. Interest rates are higher now than in 1997 and if the City and Government payrolls were removed there will not have been a huge rise in general. House prices may well be more than double their sustainable levels and with minimum depoosits three to six times prior requirements even the lower priced houses look vulnerable.
The BoE should hold rates and increase them if the outrageously high 2% target won't be met. The Treasury should buy in Long Bonds.

DM, Eastbourne,

What we need is some good old Tory Boy inflation. It paid my mortgage three times over. Happy days.

Ken Leyland, Liverpool, U.K.

No body really knows where the current economic conditions will take us. Economics still remains such an inexact science. Expert commentors such as AK (whom I a respect)are doing backflips to presumably re-establish credibility in 'calling' economic trends.

I certainly do not know whether it will be another temporary blip like all other recent crises (Asia 1997 /dot coms) or something more serious and sustained.

In the meantime, the economists actually running our economy are tinkering with interest rates!

Rick, Leicester, UK

I may be wrong. But didn't Lawson or Lamont later admit that they should have reacted earlier to the signs of impending doom in the late 80s/early 90s? IIRC they wished they'd increased spending and/or loosened the money supplier earlier.

Hope the MPC wakes up fast; faster than our Australian RBA that keeps raising rates...

Seb M, Melbourne, Australia

Britain is overborrowed - in both mortgages & credit cards.

The comfort of a bullish real estate market has been ripped away.

Slow death or Fast death of the economy - that is the question.

Good luck to you all - but no sympathy.

Richard, Bucharest,

Anatole, what we need desperately is lower taxes, a reduction in VAT rates, and a cut in petrol duty. This coupled with a cut in state spending; the budget for the NHS is obscene at £120 billions.

The conservatives need to come out with a budget cut and Tax cut policy. They would soar in the polls and put this terrible administration to sleep permanently.

Purps, Chelmsford, England

So what if house prices fall? Everyone who has a brain knows they are too high and they must fall some time.

We have to realise that hard work and intellectual property should bring about wealth and not magical unsustainable housing booms and carefree credit card use.

Rob H, London,

Get real everybody yet again we allow the city to inflate the market take a quick profit then get their money out just before the "downturn" and when the dust settles surprise surprise its pensions and endownments that suffer.
Also how come no one is to blame for sub prime then ?

A White, Edinburgh,

Anatole, you have all woken up too late and I fear we have no politicians, and certainly not financiers, with the backbone to do what is right for the UK. Without urgent action we are headed for:-

A sterling crisis
Public funding crisis
Public sector strikes - Winter of Discontent?
Social upheaval - Toxteth, Brixton?
A dangerous shift to the right in British Politics

Steve Marchant, Broadhempston, UK

I'm too dizzy too comment. Anatole's opinions are alternating so fast it's like being subject to flash photography. Running with the hares and hunting with the hounds indeed.......

Gertrude from Lowestoft, you are of course correct, they are indeed re-inflating a balloon with a puncture. It's a short term measure. Could it possibly be linked to a few folks in the know making some nice money doing some shorting of their own in the markets?

Talk about moral hazards! Let's keep on privatising the profits and making the all the debts public until the tax payers' pennies drop. Literally and metaphorically.

E Craig, Gourin,

WONDERMAN BROWN and his so called prudent economics are just so much fluff based on fools getting ever deeper in debt. The idea of a being a diligent saver has by passed the average householder
since 1980.
Most folk seem to think that to have a credit card is to be rich! In fact it is to be poor. Bring back Mr Mickawber!

David Vinter , Lputh, Lincs., UK.

Dosn't reinflating a balloon with a hole in it just delay the deflation? Help for mortgagees at the bottom end should come from lower taxation not lower interest rates.. The top end can look after itself, and does, and it is their ability to inflate their incomes, not open to public sector employees, and avoid reasonable taxation that should be curbed. Tax the rich and give it to the poor who will spend it locally and stimulate locally.

gertrude, lowestoft, England

For the past 7 years or so I have had an uneasy feeling about the direction of the UK enconomy. However I could always find soothing comments and predictions from AK. And now when we really need his mollifications he has suddenly gotten real!

P Heyes, Peterborough, UK

Cheap, reckless lending created the economic disaster that Britain is now facing into - so how on earth can more cheap, reckless lending avert disaster? Millions of people in the UK have borrowed more than they can afford to pay back but the debts have to be repaid at some point. Lowering interest rates is only a stay of execution.

Reckless lending has created a situation now where there are only two ways out: a short but painful period of retrenchment where bankruptcies and repossessions soar and house prices return to historic averages or else a period of inflation that will destroy the currency and the long-term economic health of the UK. Surely some short-term pain is better than long-term economic destruction?

MB, Edinburgh,

I entirely agree with Vik from Vienna.
This country's wealth and world standing was founded on industry and we are left with virtually no manufacturing base now. We have exported not only our know how, but thousands of jobs as well.
I think it is extraodinary that a Labout government has done this to the workers and depends entirely on the City. Come back Thatcher, all is forgiven !!

Ken, Orpington, Kent

Simple solution....lets slash interest rates, get the unemployed working in the public sector and the service industry can service the extra debt this government encourages. Hopefully this will should keep us going till the next election. Who needs long term solutions?

Jerry, Beverley, Yorks, UK

Running with the Hare and hunting with the hounds Anatole?

Graham , Littlehampton,

why are the owners of shares in Northern Rock -a nd other companies seen as deserving of any losses if NR and other companies fail?
What would happen if no one bought shares in these companies?

mike cassidy, oxford, england

The UK model is redundant. The BoE is caught between a rock and a hard place, however, because real inflation is actually very high. The new CPI inflation measures do not reflect reality for most people. My guess is that rates will be cut reluctantly and with none of the FOMC's intent in the USA. But we can't just cut our way out of the problem.
In fact certain banks have actually hiked their mortgage rates in anticipation of an official rate cut today! No-one is going to miss the opportunity of making their margin, especially after the years of excessive lending for miniscule margins, characterised by Northern Rock. And look what happened to them.
Maybe the biggest problem in the UK is one of complacency and a feeling of huge national wealth when the reality is different. Lots of people living on credit. Over-leveraged banks. And a government that threw its so-called Golden Rule book out years ago, and has borrowed billions to fuel the Public Sector's insatiable appetite. Scary!

James Charatan, London,

Hmmm....a rather long winded way of saying the economic miracle presided over by Buggins Brown, when he was Chancellor, is substantially founded on public and private sector debt?

The view now being put here and elsewhere is for more of the same - cut interest rates and encourage 'spending'.

m collins, Leeds,

It would help the long term viability of the UK economy if we had politicians and other 'leaders' who were other than career politicians, usually with degrees in law, politics, history, and the like.
Maybe then they would have spent the last 20 years promoting our manufacturing and sci/tech base and energy generation capability etc. Just like the French, Germans, Americans, Japanese, etc did.

Brown's tax 'n spend, debt, and immigration fuelled boom was always going to end in tears.

paul newbold, sheffield, UK

I agree Mr. Kaletsky!

As I have no savings and a £100k loan with the banks at a fixed APR, I look forward to inflation out stripping my repayment rate. Salvation...

I. Amamunter. , South West, UK

Don't worry. Anotole is only joking. The worst is over don't forget.

Alex Ritchie, Salisbury, UK

This article appears to have been writen in panic. Its anlysis that the UK economy is over-reliant on financial services, consumer spending (borrowing) and public spending (borrowing again) is correct. Its propsed remedy of more of the same is, obviously, flawed.
Yes the house price bubble is bigger in the UK than in the US and yes the affordability of that bubble is worse, as the UK is less productive than the US. That means house prices will either fall rapidly in the short term (if unemployment rises) or slowly over a longer term (if unemployment doesn't).
However, to totaly undermine the economy then do cut rates. Brown took his eye off the inflation ball by replacing RPIX (meaningful) with CPI (meaningless). Based on RPIX we would be having an interest rate rise as its value has been in excess of its 1997 target for a long time now.
Brown shows all the signs of being another Callaghan. He can only hope monetarists in the BOE help him out.

Eddie Reader, birmingham, england

I find the call from economists of all hues for interest rates to be reduced baffling. Is this not a disincentive to savers and a bonus for indebtedness? Will this not only put back the day of reckoning for an economy built on the " sands of debt". As Anatoly points out the three main pillars of the UK economy are built on Finance, Housing and Public Service.

Each of these is " non- productive" or easily transferable investment. Britain, which at one time had first class R & D base - and many companies with world class reputations - have let them wither. I remember being part of a successful start-up medical-diagnostic company in the early 80's which was sold to foreign interests with resulting loss of highly talented staff. This could have grown - as it has under it's current American parent- into a sizable multibillion dollar , sizable employer. But no, because " the city" ensured that it was not " profitable.

Vik, Vienna, Austria

I agree with your final paragraph. I am baffled by the news stories about "saving" Northern Rock. What is there to save? We live in an age of computers and networks and there is no need at all for the mortgage industry to continue with a Main St store-front business model.

All we need to do with Northern Rock is to auction off its loan book to the highest bidders, and let its investors take the losses they deserve.

The notion that Northern Rock has a claim on the taxpayers' money simply by existing and getting itself into trouble is about the worst kind of moral hazard I can imagine.

While we are at it, let's send a letter to every citizen pointing out that there is no such thing as a "safe" savings yield over that on Government Bonds. It simply does not exist, and ought not to be guaranteed.

jon livesey, Sunnyvale, CA/USA