Interest rates cut at last

The Uk Stock market plunged another 3.6% this morning on the back of the banking package. Then came the news of a 50 basis point cut in the UK, matched by the same in the US and Euroland. The market immediately rallied and is now up on the day.

Subsequently markets decided the interest rate cuts are not sufficient to stop a recession and fell again.

I don’t know where that leaves the independence of the MPC, but it was the first downpayment on the action we need to fight recession.

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15 Comments

  1. Tony Makara
    Posted October 8, 2008 at 1:25 pm | Permalink

    The interest cut, is, I fear, the start of a slippery slope. One now has to fear for the status of our currency and the knock-on effects for inflation entering our economy on the back of imports. At this crucial time the Bank of England should be doing everything to ensure that Sterling is in a healthy state once the problems with liquidity are resolved. Sadly though, the MPC has once again demonstrated that it is in a glove-puppet relationship with the Labour government. It is a disappointing move.

  2. Mike Kingscott
    Posted October 8, 2008 at 3:09 pm | Permalink

    That's all well and good, but what about the savers who rely on their deposits for income (e.g. my mum)? What about the people who fixed their mortgages recently (i.e. me – doh!) 😉

    Anyway, low interest rates didn't really help Japan all that much, did they?

  3. bill Quango mp
    Posted October 8, 2008 at 3:16 pm | Permalink

    Gordon brown is the cavalry with a last minute, just in time rescue for the wagon train.
    More heroic if he not helped are all those injuns to get winchester rifles and got them liquored up on firewater in the first place.

  4. Webloyalty
    Posted October 8, 2008 at 4:14 pm | Permalink

    Stock markets all over the world are in a state of confusion. In my opinion, interest rate cut is a short term intervention. The government should take long term measures.

    – David.

  5. Monoi
    Posted October 8, 2008 at 5:04 pm | Permalink

    30mins to go, and FTSE is down 5.5%…

    Why only 50bp? The US is down to 1.5% so it could not do more, I would have expected everyone else to go 100bp to really make a difference.

  6. mikestallard
    Posted October 8, 2008 at 5:22 pm | Permalink

    I am in the same position as Mike Kingscott's Mum.
    So I have written a little poem which I would like to share with you.

    The Iron Chancellor: a sonnet.

    [The original Iron Chancellor was, of course, Otto von Bismarck, who founded the Second Reich and unified Germany, making her one of the greatest states in the late nineteenth century world.]

    “The Iron Chancellor,” you said,
    “Is what I plan to be,
    “With Prudence as my handmaid,
    “Your money’s safe with me.”

    And then, with trust established,
    You spent our hard earned cash,
    Until, your pocket empty,
    The Banks began to crash.

    And now, in times of trouble,
    You scrabble round the floor
    Searching for extra pennies,
    Yet promise billions more.

    A nail-biting, silly Scot,
    Otto von Bismarck you are not.

  7. DBC Reed
    Posted October 8, 2008 at 6:43 pm | Permalink

    Lower interest rates may make the punters want to borrow more
    but it won't make the banks want to lend more, which remains the problem.
    Polly Toynbee called for LVT to prevent further property bubbles in her much discussed piece in the Guardian yesterday(7th 0ct). If LVT does counter property bubbles ( and UK experience with the similar schedule A of Income Tax in the 50's and 60's shows that it does) would n't introducing it now give timid bankers the confidence to,at least, renew mortgage lending?

    • Stuart Fairney
      Posted October 9, 2008 at 5:01 pm | Permalink

      Leave it to the left to think that the start of a nasty recession, when illiquidity is a major problem is just the time to think up another clever wheeze to tax someone. And think about the implementation of the same. Land without planning is worth very little. Land with planninng is almost always developed quickly (trust me on this one). So do we tax someone on the development potential of land that the local council has no intention of permitting? Hardly the fairness sought by the author of the suggestion.

      And I'm not sure how effectively devaluing land further via additional taxation in a falling market would make bankers think "well that's a relief, let's start lending again"

  8. haddock
    Posted October 8, 2008 at 10:07 pm | Permalink

    Economy in free fall because of banks' irresponsible lending to people who cannot pay…..

    solution….. to irresponsibly lend billions to the banks, who have no money, and cannot pay.

    Absolutely bloody inspired ! Yeah, that will work !

  9. Matthew Reynolds
    Posted October 8, 2008 at 10:10 pm | Permalink

    The Lib Dem's are right – let us see interest rates down to 2% so that a major depression can be averted ! Deflation is the growing & present danger that Central Banks and politicians need to head off . What is the Tory position on saving us from disaster ?

  10. Ian McCord
    Posted October 8, 2008 at 10:53 pm | Permalink

    Today the FTSE closed at 4436.7
    On 1st May 1997 it closed at 4445

    So we have come back to the FTSE with the same value as when Mr Brown took control of the economy.

    need we say more

  11. APL
    Posted October 8, 2008 at 11:40 pm | Permalink

    JR: "The Uk Stock market plunged another 3.6% .."

    No one seem to be making the connection between the stock market plunge and the absence of shorts in the market.

    Gordon & Darling, a sort of perverted Laural & Hardy. No offence to those two greats, they were funny.

  12. Gordon Riby
    Posted October 9, 2008 at 12:01 am | Permalink

    I wonder when the government will start to print money?

  13. Stuart Fairney
    Posted October 9, 2008 at 9:44 am | Permalink

    With LIBOR bearing no relation to the base rate, doesn't that make the MPC a few redundant people sitting in a room?

    Is there any point in a centrally controlled base rate any more?

  14. Jonathan Bryce
    Posted October 10, 2008 at 12:22 am | Permalink

    It's not clear what difference, if any, this rate change has made to the actual interest rates people pay and receive.

    The three month rate, which is the most important rate, has been rising steadily over the past few weeks. It is still rising.

    The overnight rate has been all over the place for the last few weeks, and it is still all over the place. Before then, it tracked the base rate to within a margin of about 0.1%.

    I'm not convinced that the Bank of England can control interest rates any more any more than the Treasury was able to control exchange rates post White Wednesday.

    It probably would be nice if interest rates were lower, but then again, it would be nice if oil cost $20 per barrel. I don't think the government can make either of those things happen.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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