Recennt rate cuts have down nothing to improve business confidence. In the fourth quarter of 2008, investment, in real terms, fell almost 8 percent.
Of course, there could only be one conclusion from this data. Interest rates are still too high! Lets cut them some more and see if that gets firms investing, innovating and building.
It is shocking who simplistic economic policy making has become. There is this idea, which seems to have gripped the imagination of the government and Bank of England, that businesspeople can not look further than the headline interest rate. These jokers in Westminster and Threadneedle Street can not imagine that firms might actually think through the implications of the financial chaos that has been cooked up over the last 18 months.
Firms can see that the goverment is about to run up several years of back-breaking deficits. Firms understand that the Bank of England has lost control of interest rates. Firms also know that the MPC is desperately trying to inflate its way out of trouble.
When confronting with this chaos, the only sensible thing a firm can do is delay any investment projects that in more normal times might have generated healthy returns.