THE TIME has surely come for another interest rate cut. Up until this week, the Monetary Policy Committee could reasonably argue justification in resisting calls for more cuts. The economy has been as flat as pancake ever since 11 September, but certain parts of it, consumer spending and housing, were racing away in a manner which even Gordon Brown, the Chancellor, thought required a rise in rates, not a cut.
That picture has changed. Consumer spending in July was more subdued than generally thought, and although mortgage lending seems to hit new records by the day, there are now clear signs of a slowdown in the overheated housing market. Yesterday's downward revision in second-quarter GDP growth to just 0.6 per cent confirms the economic stagnation we all suspected but the Government still refuses fully to accept. With inflation nearly a full percentage point below the Government's target, it's hard to see how a further quarter-point cut in rates could do damage. The risk at the moment is not that of inflation, but deflation.
In the US, the chances of a double-dip recession have grown markedly in recent weeks. Some areas of consumer spending remain buoyant, notably autos, but that's only because the manufacturers are virtually giving the things away. The risk of outright deflation, something which has been talked about for ages but has generally been dismissed as remote, is also growing.
Alan Greenspan, chairman of the US Federal Reserve, needs everyone to keep spending, even if that means household debt grows yet further. Once households stop spending and start …