The economic storm is penetrating every corner. The Bank of England’s Monetary-Policy Committee (MPC) has pulled of shock when most thought there are almost no surprises left: it has cut UK interest rates by 1.5% leaving them now at 3% – the lowest level since 1955.
The boldness should be commended, although it clearly demonstrates that they were shocked themselves by the rapidity of the UK’s contraction, as well as the global downturn. Though consumer-price inflation, at 5.2%, is high, the bank reckons that the collapse in commodity prices and the prospect of weaker growth means there is now a “substantial risk” that inflation will fall below its 2% target.
Furthermore, British GDP fell at an annualised rate of 2% in the third quarter, factory output fell for a seventh successive month in September, new-car registrations fell by 23% in the year to October, and house prices fell by 2.2% in October leaving them 15% lower than a year earlier. Things are indeed looking grim.
Also this last week the International Monetary Fund (IMF) revised its economic outlook stating that it envisages Britain’s economy shrinking by 1.3% in 2009, and that of the euro area by 0.5% – the European Central Bank has also just cut rates by 0.5% perhaps indicating that the ECB is not recognizing the global tsunami soon enough. Simon Turner