A common cause of these downward pressures on the economy is the banking malaise, which has undermined equity and property markets and curtailed the routine provision of finance to business. That makes it all the more ominous that banks are expecting to restrict credit still further. A survey by the Bank of England published on January 2nd found that lenders had reduced the availability of credit to both households and companies in the three months to mid-December and expected to curb it still further in the first quarter of 2009.

Banks' reluctance to lend as they strive to repair their overstretched balance-sheets is impairing the effectiveness of monetary policy. But the sheer scale of rate cuts over the past three months is helping many indebted households. About half of mortgage borrowers have variable-rate loans and are therefore generally benefiting from the reduced cost of servicing their debt. Savers are grumbling about the sharp fall in interest rates on their deposits and the Conservative opposition has pledged tax concessions to help them. Yet, however unfair it may seem to the thrifty, rate cuts are needed to boost the overall economy.

© The Economist Newspaper Limited 2008