Could interest rates go even lower?

A reduction in the base rate from 0.5 per cent to 0.25 per cent is no longer unthinkable.

With just a month to go until his autumn statement, the latest set of growth forecasts make grim reading for George Osborne. Ernst and Young's Item club predicts that the economy will grow by just 0.9 per cent this year, well below the 1.4 per cent it predicted three months ago. It has also downgraded its 2012 growth forecast from 2.2 per cent to 1.5 per cent.

Peter Spencer, the body's chief economic adviser explains:

It's worse than we thought. The bright spots in our forecast three months ago - business investment and exports - have dimmed to a flicker as uncertainty around Greece and the stability of the eurozone increases.

Significantly, the club uses the same forecasting methods as the Office for Budget Responsibility (OBR), offering us a preview of the downward revisions the OBR will have to make when it publishes its new estimates on 29 November, the day of Osborne's statement. Lower growth, of course, means higher borrowing, so the OBR is also likely to revise its deficit forecasts upwards. The club predicts that unemployment will rise from 2.57m to 2.7m over the next 18 months, resulting in lower tax revenues and higher welfare payments.

In response, it calls for a cut in stamp duty for first-time buyers and a reduction in interest rates from their current record low of 0.5 per cent to 0.25 per cent. The Monetary Policy Committee (MPC) has held the base rate at 0.5 per cent since March 2009 but it's worth noting that the possibility of reducing it even further was discussed at the last Bank of England meeting. The most recent BoE minutes (from 7-8 September) noted that the MPC "revisited the earlier decision not to lower Bank Rate below 0.5 per cent".

A reduction to 0.25 per cent still seems unlikely but, given the parlous state of the British economy, I'd expect that the MPC is ruling nothing out. As Mervyn King said when he announced another round of quantitative easing, "When the world changes, we change our policy response".

George Eaton is political editor of the New Statesman.

Grant Shapps on the campaign trail. Photo: Getty
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Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.