Published: 26 December 2007
Economy
2007 has turned out to be the most challenging year for the Bank of England since it was granted independence to set interest rates in 1997. Inflation rose above 3 per cent earlier in the year, forcing the Bank’s Governor, Mervyn King, to write a letter of explanation to Gordon Brown. And then came the summer of the credit crunch and the Bank’s initial reluctance to pump more liquidity into the banking system to keep the wheels moving. An air of caution has descended on investors ever since the Northern Rock crisis. As the year draws to a close, the signs are distinctly chilly. There is mounting evidence that the housing market is slowing down, with the commercial property market on the brink of collapse, while consumer sentiment is weak as households tighten their belts as successive interest rate rises finally start to bite. This month, the Bank bowed to intense pressure to cut rates for the first time in two years, down by a quarter of a point to 5.5 per cent, but many question if it is enough to prevent an economic slowdown. Some economists are predicting an outright recession.