A licence to print money

Well no, actually. The amount of paper cash wont actually rise from the current c. £40bn mark after the MPC’s decisions to embark on quantitative easing .

The money created instead will be flooded into high street and commercial banks in an attempt to get them lending once again – “back at 2007 levels” if you believe our PM. Which you shouldn’t.

Essentially, in spite of what some on the MPC have argued – that the transition mechanism of monetary policy is broken – they today decided that inflation in Britain will soon fall below 2 per cent. It may even go negative.  So:

Accordingly, the Committee also resolved to undertake further monetary actions, with the aim of boosting the supply of money and credit and thus raising the rate of growth of nominal spending to a level consistent with meeting the inflation target in the medium term.

Interest rate decision: the choices

Tomorrow the MPC will announce that Alastair Darling has given permission to the governor of the Bank of England, Mervyn King to begin quantitative easing. The Bank’s purchase of government gilts and assets is designed to increase liquidity and, ultimately, increase lending.

Firstly, this wont work. The only thing printing money is likely to achieve is an immediate devaluation of the currency and, with no significant exporting sector, is unlikely to act as a fiscal stimulus. But more on that tomorrow.

For tonight, let’s look at the three options available to the MPC re: interest rates.

1. 0.5 per cent cut

Expected by almost everyone. In spite of David Blanchflower’s assertion that the “transition mechanism of monetary policy is broken” the Bank is likely to continue easing central credit conditions in a bid to encourage lending.

The kids aren’t alright

In the summer of 1978, a group of young Conservatives from Hendon answered an emergency call to meet near the Welsh Harp reservoir in North London. Although 100 were invited, less than 20 turned up, but they still contributed to arguably the most famous political campaign of all time, Saatchi & Saatchi’s Labour Isn’t Working.

It seems appropriate, even 30 years on, that the Tories used the young to act as an icon for Britain’s unemployed. There are now almost 2 million people out of work, one third of which are aged between 16 and 24.

The total rate of unemployment is set to hit 10 per cent by 2010. This could mean that by the start of next year, over one million young people will be without jobs. No shortage of extras for Saatchi then.

Interest rate decision – how low will they go?

The Bank of England is today charged with the arduous task of staving off a deep and prolonged recession by cutting interest rates.

With the slump in oil, food and house prices threatening a damaging spiral of deflation, the Bank, it is agreed, must act quickly and act decisively.

So how low will interest rates go?

Larry Elliott isn’t sitting on the fence or anything, but he reckons the cut will be between 1 and 1.5 percent.

The Time’s Gary Duncan says that two thirds of City analysts are betting on a 1 per cent cut. And if there’s one thing that City analysts know how to do, it’s bet.

$1.48 to the pound is not yet a crisis, according to the Telegraph. Another halving of interest rates should precipitate that.

While we’re on the pound, the Independent’s Jeremy Warner argues that it has been too high recently. Interest rate cuts should go some way to addressing the balance.

The FT reports that bumper rate cuts have already begun in Sweden. They’ve only gone and cut 175 points, making even the most radical City analyst look a little soft.

Bloomberg have solved it. It’s definitely going to be 1 percent. You heard it there first…

But the markets are not so sure, according to City AM.