Terry Murden: Looking for a rise in interest rates? Come back next year

A week that kicked off with the US in danger of defaulting on its debts just got worse. The eurozone was plunged into further turmoil amid concerns that the debt problem is not being contained, forcing sellers into world markets.

The biggest one-day fall on the FTSE 100 index this year spoke volumes about shattered global confidence and worries about the crisis spreading.

The UK base rate has been on hold at its record low of 0.5 per cent for two and a half years, and all the talk so far has been around a rate rise to combat inflation. But a hike at this stage would be disastrous, plunging more businesses operating at the margins of profitability over the edge.

Is there anything that can be done to counter the downward motion? What about a cut in interest rates? It would be an almost unimaginable move and would risk undermining sterling and act as a further driver of inflation. But the MPC could do worse than reduce rates further.

There has been talk of another round of quantitative easing - pumping money into the economy. That may yet prove necessary as economists revise down their forecasts for annual growth.

What is worrying for policymakers is that whatever they throw at the problem, nothing seems to work. The MPC seems impotent to control inflation and even the hawks calling for a rise in interest rates may be wavering. Martin Weale and Spencer Dale are being out-voted 7-2 on the committee with little indication that any of the other five are preparing to swing behind them any time soon. City talk suggests the pair may be ready to throw in the towel and stop arguing their case, especially since the most public campaigner for a rate rise, Andrew Sentance, stepped down in May.

While the Bank of England has been loath to move, the European Central Bank has been more aggressive towards taming prices, raising its interest rate twice this year.

But it expects inflation in the eurozone, currently running at 2.5 per cent, to remain above target in the coming months, whereas the UK sees a fall, probably below 2 per cent, early next year and therefore within the Bank of England's target.

A do-nothing policy looks like achieving the same end as a short-term rise.

Good effort at gloss but it's no time for bunting

The figures from Lloyds may have been as bad as forecast, but it didn't stop the bank from issuing a comprehensive guide to all the good work it is doing.

In particular it was keen to emphasise the positives in its lending record, spelling out how it had offered 21.2 billion to businesses, of which 6.7bn was to small firms.To put this in context, the bank says it is on track to meet its contribution agreed under the Project Merlin talks with the UK government. It also maintains that the cost of borrowing is lower than in 2007 and that charges and fees have remained static for the past three years.

All this should help encourage a belief that the banks are at least trying to get their houses in order. Unfortunately, they're still paying for past mistakes. A 3.25bn half-year loss on account of mis-sold payment protection policies and bad debt in the eurozone, particularly Ireland, will take some clearing up.

With a degree of understatement and possibly misplaced optimism, chief executive Antonio Horta-Osorio said the bank expected that a period of "subdued" economic recovery in the UK would be accompanied by a period of modest growth in its markets, and that this would be sustained for several years. He believes the bank is well positioned to realise over time the full potential to achieve "strong, stable and sustainable returns for shareholders".

With shares in all the banks falling yet again yesterday, the day when the taxpayer gets his money back is becoming ever more distant.