The Bank of England is likely to cut interest rates this week despite the impact that such a move could have on inflation, according to City experts.

Expectations of a respite from the credit crunch emerged amid news that the only major lender still offering 100 per cent mortgages is considering withdrawing its product.

Abbey last night confirmed that it would soon make a final decision on whether to follow other lenders in scrapping the product, which is favoured by first-time buyers.

Sources said that it would be a surprise if by Friday would-be homeowners were able to secure a 100 per cent loan-to-value mortgage from any major lender.

City experts said that it was probable that the Bank of England would cut interest rates by a quarter of a percentage point to 5 per cent at a monthly meeting on Thursday. It would be the Bank’s third rate-cut since December, although homeowners have struggled to benefit because the tighter credit conditions have caused nervous lenders to withdraw their most generous products. The projected cut would mean that someone borrowing £100,000 over 25 years on a repayment mortgage would pay £14 less a month.

Members of the Bank of England’s Monetary Policy Committee (MPC) will be concerned that the uncertain conditions could feed through into sharply lower growth in the economy.

Howard Archer, chief economist at Global Insight, said that he expected rates to end the year at 4.25 per cent. “We believe that the increased downside risks to growth stemming from tighter credit conditions, coupled with signs that the downturn could be deepening, will lead the MPC to cut rates from 5.25 to 5 per cent on Thursday, despite the inflation pressures.”

The Bank is charged with keeping inflation at about 2 per cent, but the official measure, the consumer prices index, is currently above target at 2.5 per cent.

Halifax, Britain’s largest mortgage lender, said last week that it was increasing interest rates for borrowers with smaller deposits and lowering rates for those with larger deposits.

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