If the world of politics has suddenly become a scene of change and spectacle, economics remains depressingly familiar. Stock markets were under pressure once more yesterday. And in the UK there has been a series of poor economic releases this week. Manufacturing output has fallen for seven consecutive months. Activity in the service sector is at its lowest level for 12 years. Data and anecdotal evidence point to the same fact: recession.

Against that background, the Monetary Policy Committee of the Bank of England will announce its decision on interest rates today. Analysts widely expect a cut of half a percentage point, in addition to the half-point cut the Bank made last month. We believe that a cut of at least 1 per cent is urgent.

Policymakers cannot prevent recession. But the shape of the downturn can still be affected. It might form a “V”, in which output recovers quickly from a deep trough. Or, at the extreme, it might be an “L”-shaped recession, like the one Japan suffered after the collapse of its financial system in the early 1990s: stubborn and persistent negative growth despite huge and wasteful government spending in an effort to stimulate demand. All instruments of policy need to be co-ordinated to ensure that the British economy follows the first and not the second scenario. And setting monetary policy with this aim is compatible with the Bank’s existing mandate.

There is an obvious constraint on a sharp cut in interest rates. Inflation is far above the Government’s target rate and has been accelerating. In September the consumer price index stood 5.2 per cent higher than the level of a year earlier. The target rate is 2 per cent. There are compelling reasons nonetheless for easing policy.

First, the main external drivers to inflation are moderating. Even within the September figure, there was an initial indication that food price inflation, while still high, was decelerating. Energy prices have collapsed since the summer, as the prospect of recession has curtailed demand. In June the Governor of the Bank of England indicated that he expected inflation to remain above the target till well into next year. The rapidity of the decline in the economic outlook suggests there is now a big risk that inflation will undershoot the Government’s target.

Secondly, the inflation-targeting mandate of the Bank of England is designed to take economic shocks into account. In the 1980s and early 1990s Conservative governments targeted, successively, the money supply and the exchange rate. These approaches — culminating in the departure of sterling from the European exchange-rate mechanism — proved too inflexible. Targeting inflation directly was the approach adopted in their wake. It is a framework rather than a mechanical rule. And it is intended to avoid the risk of compressing the transition to price stability into so brief a period that it causes unnecessary damage to the wider economy.

In short, there is still a trade-off to be made between price stability and other aims. In current circumstances, where the interbank lending market has frozen up and the economy is contracting, there is an overriding task for policymakers. It is to get credit flowing through the economy again. That requires sharply lower interest rates, now.