“The Bank of England’s decision to cut interest rates by 0.25% today was widely expected but still a close call, with four of the nine MPC members voting for no change. Moreover, the statement accompanying the decision was relatively hawkish, which will disappoint those hoping for more aggressive cuts.

“The statement cited “subdued economic growth and building slack in the labour market” as key factors. In other words, the weakness of the economy and mounting job losses offset persistent worries about inflation, but only just. This is not much to cheer.

“There was a strong case for leaving rates on hold until the next meeting (in the first week of February) to allow more time to assess the fallout from the Budget and to boost the MPC’s anti-inflation credibility. The Bank of England’s job is to worry about inflation, not to bail out a government which has no growth strategy of its own.

“Nonetheless, the slimmest of majorities judged –  not unreasonably – that the recent economic data were soft enough to increase confidence that inflation will fall back to the 2% target next year.

“At their new level of 3.75%, interest rates are still at the high end of a neutral range of 3%-4%. One or two more cuts are therefore likely next year. However, this is only happening because demand is weak and businesses are finding it even harder to pass on rising costs.

“It would be far better if rates were being cut because the supply-side performance of the economy was improving and productivity was increasing, allowing faster growth without higher inflation.

“Unfortunately, this is unlikely to happen as long as the government pursues policies built around higher public spending, higher taxes, and even more state intervention.”