Serious, credible people are starting to predict astonishingly low interest rates for Britain. Jonathan Loynes, of Capital Economics, says that base rate will fall from the current 4.5 per cent to just 1 per cent. Stuart Thomson, of Resolution Asset Management, was yesterday plumping for 0.5 per cent.

Even the hawks are saying that base rate will come down to 3 per cent, while some of the doves reckon zero is now a possibility.

This would be completely uncharted territory for Britain. Base rate has not been anywhere near those levels since 1952, when it was 2 per cent.

The last low point was a cut to 3.5 per cent in 2003, which, as it turned out, was a terrible error that helped to fuel the final bubble phase of the 15-year house-price boom.

For most of the past few decades, base rate has been much higher, oscillating in the range of 5to15 per cent.

Japan and the US, which cut its Fed Funds rate last night by half a point to 1 per cent, have been able to cope with ultra-low interest rates. Britain has not.

For all kinds of reasons, any serious loosening of monetary policy here usually ends in tears - with a damaging burst of inflation or a run on the pound, and usually both.

Why should things be any different this time? First, because inflationary pressures are rapidly evaporating. Energy and commodity costs are falling. With thousands of jobs being axed every day, most workforces are in no mood to push for inflation-busting pay rises.

Secondly, because of the sheer size of the financial crisis and its baleful impact on the wider economy.

Banks are going to be calling in loans at a colossal rate as they seek to shrink their balance sheets to preserve their flimsy capital cushions.

The $5trillion of emergency facilities and fresh capital on offer from the world's central banks may reduce the speed of that deleveraging, but it is still going to happen, and it needs to happen to restore faith in the banking system.

Ministers may publicly proclaim the pledge by UK banks to make loans available to homebuyers and small firms at 2007 levels.

The banks know that this is a meaningless target extracted from them for political purposes.

Unless Alistair Darling can explain how on earth he proposes to measure the availability of lending and so hold banks to this promise, he should stop going on about it. All it does is give false hope to potential borrowers.

Deflation is suddenly a bigger worry than inflation. Indeed, there are some - though not those on fixed incomes - who argue that what the world needs just now is a dose of inflation to erode the real value of debt weighing so heavily on so many.

Cutting interest rates to try to boost the economy is not perfect.

Government spending may, if carefully implemented, be more effective. It would be perverse to maintain the discipline of normal spending rules in such desperate times, Mr Darling said last night.

That is true. However, what policymakers refuse to recognise is that the country's current predicament is in part because of the lax fiscal, monetary and supervisory policies of the past.

It is dispiriting that Mr Darling was last night still boasting of presiding over “the longest period of continuous growth in living memory”.

It was precisely the unthinking nature of that credit-fuelled expansion that fostered and fed the imbalances that have since brought us to the brink.

Talk of base rate at 1 per cent is not a cause for celebration or even relief, but rather a recognition of how dire the economic prospects are now looking.

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