In a move which is sure to have epercussions for world stock markets when they reopen on Monday, the Dow Jones was rocked on Friday, falling over 2% after a raft of downbeat announcements.  It  seems that the combined effect of announcements by Caterpillar and Bank of America have brought home the delayed impact which the recent credit crunch will have on the economy.  As we all know, if the US sneezes, the rest of the world catches a cold, so influential are their markets.

So what does this mean in the short term?

In what some may see as a healthy correction, you can expect a fall in world wide markets in the short term and it seems inevitable that interest rates in the UK and US may have to move lower to lessen the impact on economies. 

What happens if the economy slows?

A slowing economy can have a massive effect on employment, investment and the government budgets for public services.  The more people unemployed will reduce the tax intake, which will mean either additional borrowing by the treasury or less money for public services.  The economy is like a large ship which is very hard to steer, and takes a long time to change direction.

The authorities now have an excuse to reduce interest rates, and while there have been reductions overseas, the Bank of England have held steady and not taken any knee jerk decisions so far - which has been applauded by many, but criticised by others.  The next few months will be vital!