Interest rates at zero
Meanwhile the Pound is continuing to weaken The minutes of the most recent monetary policy committee meeting reveal it was tempted by the fear of deflation to cut rates by more than the eventual one percent. Only the fear of an even more precipitous drop in the value of the Pound prevented it from doing so.
The recently published minutes of the meeting have led to assumptions that there will be a further cut in interest rates next month.
A precedent has certainly been set by the US, which has essentially cut its base interest rate to zero. This is the kind of bold move we would expect from the Fed, but it also means that there's no further room for manoeuvre on interest rates.
This gets especially worrying when unemployment is rising, as it is currently in the UK, with unemployment now at its highest level since 1997. High unemployment is politically very undesirable and, given the kind of consumer-led growth the central banks are trying to stimulate, economically undesirable too.
As we mentioned at the start of the year, the unpleasant economic phenomenon created when interest rates are very low and economic output is still falling, is called stagflation. There is little growth, but high inflation robs central banks of their main tool for stimulating growth - lowering interest rates.
In his blog, the BBC business editor Robert Peston said that every business leader he's spoken to on the subject has said they're expecting a sharp rise in inflation by 2010. We must hope that economic activity has also improved by that time so that central banks will have the tools at their disposal to do something about it.
