There is no doubt that many sectors of the economy could do with the tonic of an interest-rate cut. Housebuilders, anxiously awaiting Gordon Brown’s autumn rescue package (and probably prepared for disappointment), would love it.

So would Alistair “austerity” Darling — apparently reconciled to the biggest downturn in the postwar period — though I would be surprised to see that reflected in next month’s Treasury forecasts.

A cut in rates would also be welcomed by retailers, manufacturers and just about every business except corporate undertakers. But how could the Bank of England’s monetary policy committee (MPC) justify it? Growth may have halted but inflation has yet to peak.

Sterling, caught between seismic shifts in the dollar-euro exchange rate, looks shaky. Last week its average value dropped to a 12-year low, and the $2 pound is becoming a fading memory, with the rate down in the low $1.80s. Would not lower interest rates condemn sterling to oblivion?

In fact, finding an excuse to cut rates may not be as hard as it looks. Even sterling does not present an insurmountable obstacle. A large part of the reason for its fall, as noted, has nothing to do with Britain.

The part that does is mainly related to gloom about UK growth prospects and the perception that the Bank of England is constrained by high inflation from doing anything about it. If the Bank could demonstrate that it is free of such constraints, sterling could even benefit. It may be much too soon for some but the dollar’s rise has something to do with the perception that the worst may be over for America.

One MPC member, David “Danny” Blanchflower, has no difficulty over cutting rates, stressing the extreme downside risks to Britain’s economy and the urgent need for the Bank to do something about it.

Last week he attacked fellow committee members for their “misguided” worries about heightened inflation expectations and said the Bank’s prediction of a broadly flat economy over the next 12 months was “wishful thinking”. Output would fall, he said, and inflation “plummet like a rock”.

Other members, however, are a bit more squeamish. For them, the criticism they have faced as a result of presiding over inflation more than double the target is bad enough, without adding fuel to the fire by reducing rates ahead of firm evidence that inflation is subsiding.

Fortunately, there may be a way of getting there sooner. Geoff Dicks, an economist with Royal Bank of Scotland, notes that Bank governor Mervyn King and colleagues have been emphasising what is known as “money” GDP. This is just gross domestic product, or national income, in cash, as opposed to “real” GDP, which measures inflation-adjusted growth.

Money GDP featured in June, when King wrote to Alistair Darling, the chancellor, to explain why inflation had risen above 3%. “In contrast to past episodes of rising inflation, money spending is increasing at a normal rate,” he said. Its rise in the year to the first quarter was 5.5%, “in line with the average rate of increase since 1997 — a period in which inflation has been low and stable”.

The Bank returned to money GDP in its inflation report this month, making the same point about its growth being in line with the post-1997 average, but also noting that the way monetary policy affects inflation is through its influence on money or “nominal” demand. The weaker the growth of money GDP, in other words, the more the downward pressure on inflation.

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