Leading Article: A time for leadership

YESTERDAY's 1 per cent cut in interest rates was a necessary move to stimulate the economy and improve confidence. The money markets supported that view by not interpreting it as a loss of nerve. The case for a change of policy - by increasing the differential between British and other EC interest rates - had become overwhelming. The British economy is more deeply in recession than those on the Continent, and the degree of deflation being created by the burden of personal debt is far greater. Until that imbalance is corrected, lower interest rates will be required. Sterling will not recover until the economy recovers. Yesterday's move should have helped, however modestly, to lessen the danger, all too evident this week, of a slide into yet deeper recession.

Yet for all that, at the end of a disastrous week for the Government, it was bound to be seen as being motivated by political panic. Nothing could more clearly underline the need to separate the management of interest rates and monetary policy from the pressures of political life. Further cuts are undoubtedly necessary, but they should be introduced alongside institutional changes intended to ensure that adjustments are decided on purely economic grounds. The goal should be an independent central bank, with the Treasury's role largely restricted to managing public spending. As an intermediate step, a monetary policy or a US-style open market committee should be set up, with an obligation to explain the background to its decisions after each monthly meeting. The real test of nerve and skill will come when interest rates have to be raised to nip resurgent inflation in the bud. It is not easy to feel confidence in those now taking such decisions.

Failure of leadership lies at the heart of the anxiety, bordering on fear, which now pervades the country. In the past month the British people have suffered two serious shocks to their collective consciousness: Black Wednesday, which witnessed the humiliating collapse of the Government's economic strategy; and this week's precipitate and seemingly counter-productive decision to shut down 31 mines with the loss of 30,000 jobs in the coal industry alone. After the pound fell out of the exchange rate mechanism, the Government appeared to be overwhelmed by events; and after the mine closures, by the hostility of reactions, not least from Tory MPs. In neither instance did John Major show a capacity for leadership.

In such circumstances a good prime minister explains to the people what has happened, and reassures them that the Government has matters under control. No such words came from Mr Major, and his silence was interpreted as helplessness. When he found himself with a nation-wide platform at the Conservative Party conference, he reacted like a party manager. He should have talked to the country about the recession that was causing so much grief, offering some hope of counter-measures. Instead he sought to reduce the party's rift over the Maastricht treaty by outbidding the Europhobes in nationalism and appealing to other disagreeable prejudices. He dismissed Labour as irrelevant, without seeming to realise that an ineffective opposition makes brave and imaginative leadership all the more essential. The vacuum has been emphasised by Parliament's continuing recess.

Here is a man who is supposed to have good political antennae. Yet they seem to respond mainly to distress signals from within his party and to the urgings of official advisers. For somebody who claims to be a man of the people, Mr Major seems strangely insensitive to the public mood. Did he really not anticipate that wholesale pit closures would trigger widespread anger? Did he expect anyone to take seriously claims that the announcement was brought forward, and denied discussion in the Cabinet, solely because of media leaks? Could he not see that the country cried out for an explanation of the economics of a decision that so increased unemployment without apparently offering even the prospect of cheaper electricity?

Margaret Thatcher provided, if anything, an excess of leadership: nanny knew what was best for the nation, and was determined to see that her view prevailed. With Mr Major at No 10, we seem to have swung to the opposite extreme. The au pair hasn't a clue. During the election campaign the new leader seemed to stand for a more humane conservatism from which a classless and more compassionate Britain would emerge. By those close to him Mr Major is said to remain cool and collected under pressure. To the public at large he looks increasingly like a hollow man.