Interest rates in the future

Thee are siren voices calling for massive immediate cuts in interest rates. This, presumably to encourage consumers to buy, house owners to hang on to their houses, and small firms to pull through. All these are admirable objectives in the present climate.

What would the consequences be, in other respects? One would be to drive money away from this country as foreigners and even Britons took their funds elsewhere in search of safer and higher returns. The worrying thing is that despite our Sub-Prime Minister's constant reassurances that the country is well placed to weather the storm and his claim that public debt here is not excessive, the stock exchange is falling like a stone, and foreign money is leaving the country rapidly. Experts and foreigners have not bought Mr. Brown's message!

There would then potentially be a smaller pool to which the Government could sell its securities. So there could be an upward pressure on interest rates, at least eventually.

In the meantime sterling's value has fallen dramatically. This will be a boost to our exports, and it will make our imports more expensive and thus give domestic producers a better chance to compete with imports. It sounds good, but unfortunately, many of the things we import, such as raw materials, we may not be able to replace with home produced goods, and some will even be included in the goods we hope to export.

The most worrying thing is that the crash in stock prices and the collapse in sterling may go somewhere towards destroying the reputation of London as a financial centre. Brown's mismanagement and dash for debt-fuelled growth may have a serious longer term consequence for our economy. There are many financial centres, in Europe and beyond, who would be delighted to replace us. Three hundred years of innovation and experience may well count for nothing!