At the end of last month I was predicting that interest rates could be as low as 1 or 2% by the middle of next year and many thought that this was rather draconian. Last weeks massive cut of 1.5%in base rate does make this seem more likely now. On its own I do not think that this will be enough to get the economy moving but it is a step in the right direction. The next step will be how the Chancellors pre-budget statement proclaims a package of real measures to stimulate the economy. If this is to be effective the only tool in his box is tax cuts, even though these will have to be funded by borrowing. Further relief on stamp duty would be welcome together with a stimulus package for small business.
The best news of the week, of course, is that Libor is steadily moving downwards. Markets at last stabilised although there was a minor setback midweek, however the trend was still positive.
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