UK interest rates need to fall a lot and need to fall soon to avert a deep and lasting recession

Bank of England policy member Blanchflower said UK interest rates need to fall a lot and need to fall soon to avert a deep and lasting recession. Blanchflower has been the sole voice on the MPC calling for rate cuts over the past year. He says growth will contract this year and next, with inflation falling to under 1% and perhaps even going negative - a wild statement in light of inflation at 5.2% in Sept. Blanchflower blames the Lehman bankruptcy for intensifying the credit squeeze. It has yet to really hit companies and households.

Blanchflower makes the most important comment with this: “The key economic policy over the last decade has been the unsustainable rise in asset and equity prices and the associated credit boom. Does mainstream theory have an adequate explanation of why things have gone so badly wrong? It is not clear that it does. It may well be time for a rethink.'' Chancellor of the Exchequer Darling agreed that upcoming stimulative actions can be taken without fear of igniting inflation.

In hard data, Nationwide reports UK house prices house prices fell by 1.4% m/m in Oct, for the 12th monthly drop and 14.6% y/y. The average UK house price is now £30,000 lower than it was a year ago but still around £30,000 higher than it was five years ago. We have no idea what this means.

Pounds to Euros Exchange rate to buy euros last at 1.2684

Pounds to Australian Dollars currently 2.4100

Pounds to US Dollars currently 1.6420

Buy for now

Barbara Rockefeller
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