Cutting interest rates a vital first step, says LEAP

On Thursday 9th October the Bank of England's Monetary Policy Committee will meet to discuss the whether to keep interest rates on hold at 5% or to cut them. The Left Economics Advisory Panel (LEAP) is calling for a significant cut. This follows a call from the TUC for "aggressive" rate cuts.

John McDonnell MP, LEAP Chair, said:

"To avert the prospect of the longest and deepest recession in living memory, the Government must reassert democratic control of economic policy by overriding the Bank of England Monetary Policy Committee (MPC) and cutting interest rates significantly, if it does not act to cut rates hard and fast.

"The remit of the MPC should be widened to advising on the wider economic health of the country, but the Bank’s policy role should revert to being one voice among many others to be taken into account when democratic Government, not bankers, determine our economic policy."

Graham Turner, economist and author of The Credit Crunch, said:

"Following the nationalisation of Bradford & Bingley, the case for an early and decisive rate cut in interest rates is overwhelming. The collapse of the Congress bailout and the persistent upward pressure on borrowing costs have also heightened the need for swift action from the MPC.

"Repeated liquidity injections are not the answer to the current banking crisis. The core problem is one of solvency, not liquidity. By failing to cut interest rates, the MPC has ensured the housing market will continue to slide into 2009, endangering more banks.

"And unemployment is set to rise sharply. Wages have not responded to the spike in headline inflation, as feared by some members of the MPC. With the honourable exception of David Blanchflower, the MPC has overstated the second-round effects from rising energy prices, exposing their lack of understanding over how globalisation has fundamentally changed the world economy.

"Furthermore, the sharp downturn in the Industrialised West has spilled over into emerging market economies, precipitating steep declines in commodity prices. Inflation will fall quickly next year, and could even be back within target by the mid-point of 2009. The Bank of England should not wait for confirmation of this swift reversal. It should act now in accordance with its mandate.