Initial Reaction from The Letting Site to The Rates Cut

The biggest cut since 1981. But is it too much and too late? One wonders if Gordon Brown regrets giving independence to the Bank of England.

There seems little doubt he and Chancellor Darling would have cuts rates weeks ago – just as America did. But his hands were tied – and he’d tied them himself.

The Bank of England has been ‘behind the curve.’ It hasn’t responded swiftly enough to the tumult. As Richard Lambert of the CBI says the economy is going downhill fast.

First reaction from the Stock Exchange in London and elsewhere around the world is not encouraging.

Even a cut as deep as this – given the innate conservatism of the Bank of England this is the starkest warning about how deep and dangerous the recession is going to get – has failed to bolster confidence. There is a profound fear in the markets now that it will take much more than slashing interest rates to avert a slump.

Inflation is a hydra-headed creature and its box has now been opened – well and truly. But fighting inflation has had to take second place in what has become a fire-fighting agenda if Britain’s economy is to stand a cat’s chance of being able to weather the storm. Growth turning into recession is now the immediate concern.

It is essential that the banks pass on the cuts to existing mortgagees and those seeking new mortgages and to businesses big and small trying to finance their companies.Debt refinancing for major corporations is a huge problem if turnover, sales and profit plunge.

Great pit props of the economy – cars ( sales down 23%) have taken a mighty hit because of the crisis and through a combined attack by government and the Green lobby. Construction, property, the service sector, all need funding at a proper rate.

The banks have behaved abominably in the past weeks. This is a chance to redeem themselves, to start think about the national interest as well as the blackness of their bottom line. It’s vital, as well, that the inter-bank lending rate falls to sensible levels.

No wonder Alistair Darling has – at last – begun to wave the big stick at the banks. It’s a chance for him too to pick up a few points. His super-calm personae is beginning to look about as convincing as the ‘don’t panic’ attitude of the conductor of the orchestra on the Titanic. We’re now promised he’s going to get really cross with the bankers.

But the bankers have been brazen and hard-nosed. And a growing number of people have been saying that Darling getting in a paddy with them is like being savaged by a dead sheep. It seems unlikely that many will be shaking in their well-polished Church’s.

Next year – 2009 – will be financially bloody. But slashing rates to a level not seen since 1954 is stark and dramatic and should give a fillip – let’s hope it lasts – to consumer spending and to that priceless commodity in any economy. It’s called confidence.

Big though it is this cut is unlikely to be the last. More should be coming through. Economists are talking of getting interest rates down to a big fat zero. Some might say Hail the day! But if it comes about the ramifications of that are too great to contemplate.