Policymakers step up a gear

The last month has seen UK policymakers take more aggressive action to stop the recession from turning into a depression. November’s 150bps cut in interest rates to 3% left them at a 57-year low. And the Inflation Report suggested that the MPC is willing to slash rates further. Meanwhile, the Pre- Budget Report giveaway of £9bn this year and £16bn next year amounts to around 1% of GDP. Nonetheless, the latest data suggest that the recession is deepening and that the threat of deflation isgrowing. We think that both monetary and fiscal policy will need to remain loose for a long time.