The Bank of England was ambushed by the severity of the recession and failed to realise what was happening to the economy, according to Deputy Governor Sir John Gieve.

He also claims interest rates are failing as a tool to control the economy, and new methods are needed.

The Bank cannot just rely on interest rates to control the economy, he argues.

“One of the main lessons from this is that we need to develop some new instruments which sit somewhere between interest rates, which affect the whole economy and activity, and individual supervision and regulation of individual banks,” Gieve said, talking on BBC TV’s Panorama.

“Maybe we need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand. I think we need to complement interest rates, which are a blunt instrument – you set one interest rate for the whole economy – with something which is more financial-sector specific.”

Speaking on the same programme, John Varley, chief executive of Barclays Bank, predicts credit will be tough to obtain for the next one to two years.

Across at BBC Radio 4, International Monetary Fund head Dominique Strauss-Kahn backed Gordon Brown’s recession strategy yesterday by urging governments to shore up their economies with more or face a worsening downturn.

“Our forecast, already very dark and will be even darker if not enough fiscal stimulus is implemented,” Strauss-Kahn.

In an implicit backing of Brown’s £20 billion stimulus plan, Strauss-Kahn said he had reversed his view of state borrowing and believed that increasing government debt was the “less bad solution” – nevertheless he felt the world’s leading countries need to pump at least £800 billion to start moving out of recession.

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Tags: Bank of England, Banking, BBC TV’s, Gordon Browns, Monetary Fund, Panorama, Sir John Gieve, Strauss-Kahn

Poor old Gordon Brown…nothing he does meets with approval any more. His £1bn fuel package has been slammed by critics as too little too late. Fresh off the back of the embarrassing stamp duty fiasco which saw the mortgage market freeze for weeks while buyers waited for clarification at exactly the worst time, his Father Christmas act has been greeting with shouts of Ba Humbug.

The fuel costs to heat homes has shot up with oil prices so that now the average family can expect to pay over £1400 per year by 2009, up from just under £670 a year in 2005. More than 10% of people are now officially living in fuel poverty and that figure is climbing fast. Fuel poverty is defined as anyone where 10% or more of their income is paid on fuel bills.

Double digit hikes in energy prices in the last 18 months, with more to come have seen the government’s plans to eradicate fuel poverty by 2016 go up in smoke, so to speak. People can be seen huddling around the embers…trying to keep warm.

His package included free cavity wall and loft insulation for pensioners and poorer households and all households will get a 50% discount on the work. Half a million customers will have their fuel bills frozen and payments to the most vulnerable will go up from £8.75 a week to £25 a week. This will be paid for by the energy companies themselves who will carry out the work, but many people fear that they will simply pass on the costs to the consumer through higher prices.

Mr Brown rejected calls for a windfall on energy companies and poured scorn on those who said that the bill would eventually be borne by consumers through higher prices. He also dismissed calls that loft insulation would take too long to implement and said that there would be an immediate impact.

Help the aged said in a statement “Individual changes which have been flagged by the Prime Minister are sensible and move in the right direction, but they are too little, too modest and will take too long to address the urgent plight of many pensioners today.”

A campaign has been launched to make people aware of the package, but some people referred to it as giving a drowning man swimming lessons. It looks like Mr Browns Autumn re-launch could be as frosty as a pensioner’s house this Christmas.

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Tags: Energy Prices, Fuel Costs, Fuel Package, Gordon Browns