By Hamish McRae

The cautious tone of the Bank of England's new Inflation Report has cut market expectations for interest rate reductions this year, with the markets expecting one reduction to 5 per cent in the summer and then another to 4.75 per cent in the autumn - but then not further fall at least until March 2009. Things that could change that would be a sharper fall in demand than at present seems the case, for the latest job fugures have been very strong, with unemployment still falling in January. If however the housing slump were prolonged into 2009 then the bottom of the economic cycle might come later than the Bank currently thinks. It takes about 18 months between the peak of house prices - which was last October/November - and the full effects passing through into the economy. This suggests that the problem year will be 2009, not 2008.

By Hamish McRae

Mervyn King's reappointment as governor of the Bank of England was always secure because the costs of not reappointing him were too great. There were no other obvious candidates and to have appointed anyone else would in any case be seen to undermine the independence of the Bank, and hence the decision the Prime Minister most frequently cites as one of his key achievments. But do not think this represents any warming of the relationship between King and Alistair Darling. The latter is still in private a strong critic of the governor's handling of the Northern Rock affair and this cool relationship will continue for the rest of the parliament.

By Hamish McRae

There is an intriguing parallel between the way in which sovereign wealth funds (SWFs) are rescuing US financial institutions and the BRICs are rescuing the world economy. In the former case SWFs are in practice the only source of emergency capital for firms in trouble - investors at last resort. In the latter, countries such as India and China, and so some extent Russia, are the only large countries that are unaffected by the slowdown in the developed world. The combination represents a huge shift of power from the US and Europe to Asia.

By Hamish McRae

This looks like a turning point in UK interest rates. A number of commentators (including myself) over the weekend called on the Bank of England to start cutting rates at the monetary committee's meeting this week. Reason? Partly the evidence of a slowing economy but more the chaos in the money markets. Three month rates have shot up again so that monetary conditions are much tighter than they should be for this level of Bank rate. You could almost say that the money markets are doing the Bank's work for it. What has also changed is the group of people calling for lower rates.