The last cut is the deepest.

(From Financial Director)

Byline: Dennis Turner, chief economist at HSBC and a Fulham supporter.

There was an element of surprise when the Monetary Policy Committee (MPC) cut base rates in July, not least because it marked Mervyn King's debut as chairman. He is generally regarded as a hawk on inflation and interest rates. While it's true that as a member of the Committee since 1997 he voted in favour of all but two of the previous 15 rate cuts, he also voted 22 times for an increase and was with the majority on only nine of those occasions. So to loosen policy on his first appearance as governor was something of a break with past form.

This ninth reduction since February 2001 has taken rates down to 3.5%, the lowest level since 1955. The last time they were this low, the Conservatives won a general election and Chelsea were League champions - a coincidence of events none of us will live to see again!

The downward move was also surprising because it was hard to see what had changed in the previous few weeks to justify a rate cut. The economy was still growing at a below-trend rate and still relying heavily on spending by indebted consumers and government to make up for weak investment spending and exports.

When the minutes of the meeting were published, the MPC cited four reasons for the cut. The first was that house prices were unlikely to accelerate, the second that there was less risk than earlier in the year of stimulating further consumer borrowing, the third was that the imbalances between various parts of the economy would not widen and, finally, that sterling had strengthened. Unfortunately for the policymakers, statistics published since the meeting contradict the first three of these arguments and raise doubts about the MPC's decision.

According to the Nationwide and Halifax, house prices rose by between 0.6% and 1% in July. Although this is not an acceleration in prices, there is clearly still a lot of life left in the housing market. Second, retail sales bounced back strongly in June, rising by 1.9% on the month and 6% over the past year. This was the biggest monthly increase in high street sales since January 2000. On top of this, the Bank of England published figures showing that consumer net borrowing in June rose to its highest level since ...