With the Icelandic economy on a precipice, the Irish supporting all deposits and  the German government intervening as well, the financial markets are clearly in unknown territory. Stock markets have plunged despite commitments from central governments to help take the strain out of inter bank lending.

 

The next logical step is for cuts in interest rates to be driven through by anxious politicians. And, despite the Bank of England being independent of politics, a cut would seem a likely outcome of this weeks MPC meeting. A cut would signal that the agenda is for a slowing economy not an economy heading into a deep and long lasting recession. Last months report highlighted that inflation will work its way out of the system when the oil price step increase unwinds, the events since then show that the ongoing lending anxieties are seriously damaging commerce and slowing the economy at an alaming rate. An interest rate cut would be some gesture toward correcting the speed of economic descent.

 

Whether any cut makes an immediate impact on the markets is of little consequence, the cut is required to begin the long and undoubtedly slow process of bringing confidence and inter bank lending back to financial markets.