Critical times require critical measures. First, governments around the world have torn up the rules for the financial system. Now, as the global economy slides into recession, central banks are adjusting monetary policy dramatically to catch up. The Bank of England, the European Central Bank and the Swedish Riksbank all made hefty rate cuts yesterday. For now, there is little choice but to ease monetary and fiscal policy, but politicians must be wary about the impact of this loosening on confidence in their currencies and governments.

Europe is in bad shape, nowhere more so than the UK. Following 200 basis points of cuts in the previous two months, the Bank of England reduced its rate by a further 100 points to 2 per cent. It is the first time that the policy interest rate has plumbed these depths since rates took their current, central role in macroeconomic management.