Despite this help for the economy from looser monetary policy, the worry is that the Bank of England is running out of ammunition as the base rate heads towards zero. And in any case the conventional strategy of lower rates may not be strong enough as long as banks continue to restrict credit. One solution would be to force-feed them with even more capital, but Gordon Brown said on January 4th that this was not a front-runner among possible new measures. Nor is "quantitative easing" —printing money to buy assets. However, the government is planning a package of further help to support bank lending in the battle against recession.

The findings, together with earlier surveys, confirm that the recession intensified towards the end of last year. Official figures published in late December showed that GDP fell in the third quarter by 0.6%—rather than the original estimate of 0.5—from its level in the spring. It now looks as if GDP declined by a further 1% or so in the last three months of 2008, according to Capital Economics, a consultancy.

The outlook for 2009 is dispiriting. Despite the fillip from the temporary reduction in value-added tax, consumer spending will fall sharply. Households will retrench as unemployment rises and those with jobs fear they may lose them. Spending will be hit, too, by weak stockmarkets and shrinking housing wealth. House prices fell by 15.9% in the year to December, according to Nationwide Building Society.

The economy will also be clobbered by cuts in capital spending. Since the prices of homes still have a long way to fall, housing investment will remain depressed. Businesses are already cutting their capital programmes, with more to come in the year ahead. Capital Economics is predicting that GDP will fall by 2.5% in 2009, the biggest annual decline in the past 60 years.

... contd.