Interest rate cut?

I suspect the rate cut has been aimed solely at the housing market hoping that a quarter point cut will prevent a catastrophic crash. Personally I don't think it will help since the main issue with the housing market has been a combination of finantial institutions lending 100% and higher morgages and the buy to let bubble forcing prices higher and higher. With the number of available morgages now falling and the risk of negetive equity scaring off buy-to-let people the number of buyers will reduce. The first thing Gordon Brown did when he became chancelor was to remove house prices from the inflation calculation. Had he not done that we would have been running at an inflation figure of close to 10% not the 2% he claims. As a chancelor he knew how to present the budget to make it seem appealing (2% reduction in income tax that actually makes most of us worse off unless we apply for tax credits) but long term we're all worse off.

House prices are grossly over-valued. (nine times average salary) Brown's CPI inflation measure is a joke, because it completely under estimates real inflation. This is very convenient, because it allows the BOE, following further pressure from Brown, to keep reducing interest rates. The reason, Brown is terrified of a housing price collapse, together with the consequent effect on the economy. This policy, risks repeating the policy that got us into this mess in the first place: massive over borrowing both on mortgages and credit cards. The correct course of action, is to keep interest rates where they are, hopefully controlling inflation, allowing house prices to come down to a sensible level, allow the recession to take place, (we have more than earned it) attract savers, because we need more of them and not more reckless borrowers.

If inflation was the only problem I would agree with you. But the most urgent problem at hand is the credit crisis. The UK interest rate cut, like the Fed cuts last mind serve to pomp money in the system. If they wouldn't do that we would face stagflation, meaning a stagnating economy, on the border or into recession plus inflation. It happened before, in the seventies and it's much worse than inflation alone.

A cut in interest rates is no bloody good for the savers among us either! I fear Clown Brown has had his sticky fingers in the pie again.

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