This week the International Monetary Fund and the European commission slashed their forecasts for UK growth. The referendum result had “thrown a spanner in the works” of the global recovery, the IMF said. It now expects the UK economy to grow by 1.3% in 2017, compared with its 2.2% prediction in April. The commission’s projections were, at best, 1.1% growth next year and worst case, a 0.3% contraction.

Both sets of forecasts look optimistic. It seems almost inevitable that the UK is heading for recession. The Bank of England governor, Mark Carney, had clearly signalled that his monetary policy committee (MPC) would cut rates at its July meeting, but it didn’t. Hopefully, its members will make up for this big mistake at their next meeting in August.

The Bank’s chief economist, Andy Haldane, has talked of a “sledgehammer” of measures. Economic policymakers need to get their retaliation in early. It is no good waiting for a house to be entirely engulfed in flames before calling the fire brigade; they need to be called at the first sign of smoke.

There is no chance the data over the next few weeks is going to suddenly improve. The minutes that were released after the MPC’s meeting this month were apocalyptic. The committee members gave lots of reasons why they should try to stimulate the economy but none, as far as I could see, explaining why they didn’t pull the trigger. Dither and more dither: their inaction damages their credibility – which, to be honest, isn’t that high to start with.

Broad hints were given that an economic bazooka was going to be fired next month with a suggestion they were looking at doing a “package of measures”. The likelihood is that this means more quantitative easing (QE), and probably also involves a rate cut by 0.25 or even 0.5 points from the current 0.5%.

This takes time, as the Bank needs permission from the Treasury – which it obviously couldn’t get in time, given the fact that Philip Hammond had been chancellor for less than 24 hours when its decision was released. It is unclear how much QE the MPC will authorise. There is some prospect down the road that rates could even go negative – as they are already in Sweden, Denmark, Hungary, Japan and the eurozone.

IMF cuts UK growth forecasts following Brexit vote Read more

A major problem for policymakers is that it takes a long time before the hard data confirms how an economy is performing. In the case of GDP, the Office for National Statistics makes estimates but then revises them over a period of years. GDP growth in the first quarter of 1992, for example, was last revised in September 2014. Especially hard is working out when a recession has started. We now know that the UK went into recession in April 2008 but the earliest release of the data for that quarter, in July 2008, estimated that the economy had grown 0.2%; the latest estimate we have shows it actually shrank by 0.6%. Policymakers don’t know where they have been, don’t know where they are, and have little idea where they are going.

But there were indicators that did tell the story in 2008, which were largely ignored at the time. These qualitative indicators are timely, being released within a few days of being collected, and they don’t get revised. For example, by the spring of 2008 GfK’s key consumer confidence index was falling fast and was well below its historic average; the Bank of England agents’ monthly scores on investment and employment intentions had also tumbled. Right now, these very same indicators are flashing amber again.

Even before the referendum there was evidence of slowing in the UK economy. The Recruitment and Employment Confederation (REC) report on jobs, for example, had noted a fall in permanent staff placements in June. Further, a survey at the start of July found a collapse in consumer confidence; there has not been a sharper drop since December 1994. Worryingly, the biggest fall was in the expectation of the economic situation over the next 12 months. Early indications from surveys by the Institute of Directors and Deloitte suggest that some businesses are beginning to delay investment projects and postpone recruitment. The latest Royal Institution of Chartered Surveyors (Rics) survey on the housing market has pointed to a significant weakening in expected activity. Here we go again.

Between October 2008 and March 2009 the MPC cut rates from 5% to 0.5%. This time around it has far fewer options as rates can be cut only minimally. In 2008 the chancellor, Alistair Darling, announced a £20bn stimulus package that included a cut in VAT of 2.5%. Now is the time for another one.

Hammond was foreign secretary only a week ago, and will take some time to get up to speed on the economic mess we are in, but he may not have much time. His may well be a baptism of fire, especially since he admitted that the government made a conscious choice against putting in place any contingency plans for a leave vote.

Monetary policy and fiscal policy need to work together to minimise the impact of the negative shock to the UK economy inflicted by the Brexit vote. Once again, though, it may be too little too late.