A leading economist was today quoted as saying that the Bank of England should lower the base rate by 0.5% to maintain a strong economy, keep public spending up and reduce the current slowdown.
I agree the economy is slowing down, but I don't believe in the doom and gloom scenario some people are panicking about.
People are feeling the squeeze in their pockets due to higher interest rates. The Bank of England had started raising the base rate about 18 months ago, due to inflation creeping up and public borrowing being very high.
Since then, things have started to go wrong State-side, in the sub-prime mortgage market. People on low incomes have been given mortgages they can't really afford, and now people are starting to default. Banks have been trading in these loans, and it is now not entirely clear which banks have deficits. This has lead to banks being reluctant to lend to each other because they don't know if they will get their money back. So they're keeping their rates higher than usual, above the base rate.
In the UK, a mortgage market similar to the sub-prime one in the USA was rapidly developing (I was offered a mortgage 6! times my annual salary - madness), which may very well have had a similar outcome to what happened in the US.
The levels of personal debt are still very high, and whilst some people are finding harder to repay loans etc, this is the risk you take if you take out a variable loan of any kind. If levels of personal borrowing weren't so high, people wouldn't be feeling the effects as much, except perhaps on certain types of mortgages. Variable mortgages can usually easily be transferred to fixed deals without for anyone feeling the effects of interest rate rises.
Public spending in the UK economy is based on a big air bubble of public borrowing. This cannot continue indefinitely, the bubble will burst eventually. In my opinion, it would be better to try to reduce the size of the bubble by keeping the base rate where it is now at least. A smaller bubble would have a smaller impact on the economy, if it burst.
People may struggle now, but for many it's not a case of getting into real trouble, it's more an inconvenience. If people are struggling, they should seek some financial advice to minimise the effect of the interest rate rises by consolodating loans for example.
People should keep in mind how much worse things could be. We're still not in a state of economic decline. The scaremongering media might have you believe that we are, but they only talk about economic predictions, not really about anything that has actually happened yet. The markets are fluctuating (naturally, as I write this, the FSA issues a warning and markets tumble...), but so far after a difficult day or so they tend to recover.
Economic growth is slowing down, but I think that's not a bad thing as slower growth is easier to sustain which will benefit everyone in the long run. The Bank of England should take some time to see how the UK economy will behave in the coming months. I think they raised the rates a bit too quick without seeing how the markets would react. They should look at economic impacts objectively when making decisions about the base rates, and they should not appear to base any decisions on reports in the media.
Full marks for anyone reading through this boring post. To rest of you:
WAKE UP!! 
technomist
When considering the ability of so-called sub prime debtors to repay their loans, its worth recalling that huge proportion of the taxes being levied on them go simply to pay the interest on the debt their governments have run up, borrowing money from the same central banks that set those interest rates.