The Bank of England should cut rates by a quarter point tomorrow to boost market confidence in the face of the credit crunch, The Times MPC said today.

Six of the nine members of the independent panel of economic and financial experts said there should be a quarter point cut to the interest rate while two members voted for a half point reduction.

Sir Steve Robson, former Second Permanent Secretary to the Treasury, recommended that rates should be kept on hold at 5.25 per cent in an effort to curb inflationary pressures. The Consumer Prices Index, the Bank of England's preferred measure of inflation, is currently 2.5 per cent, above the Bank's 2 per cent target.

However, Sir Steve was outnumbered by the members who felt that the Bank needed to take “decisive action” in the face of the turmoil in the financial markets.

Bronwyn Curtis, chairman of the Society of Business Economists, felt that a quarter point cut would be appropriate, stating:“More decisive action is needed to tackle illiquidity in the wholesale markets.” Claudio Castamagna, a former vice-chairman of Goldman Sachs, agreed, adding that a quarter point cut would give confidence to the market.

Rupert Pennant-Rea, a former deputy governor of the Bank of England said that if the MPC failed to take action it would seem “ostrichy”. But he also warned that a half-point cut could be seen as “panicky.”

Geoffrey Dicks, UK economist for RBS Global Banking, who also favoured a quarter point cut, said: “The case for a 25 basis point cut this month is overwhelming..it is time for the [Bank of England] to step up the pace. A 25 basis point move this week should be a done deal, and another one next month will probably be needed.”

The Committee highlighted the importance of the Bank's Monetary Policy Committee (MPC) being seen to take action to shore up confidence, regardless of the effect it would have.

Mr Pennant-Rea said: “Frankly, whatever the MPC does this month will have little of no effect on the much bigger forces behind the credit crunch.”

Martin Weale, director of the National Institute of Economic and Social Research, said: “The main impact of recent developments in credit markets will come through reduced availability of credit and interest rate changes are not likely to alleviate that in the short term.” He too suggested a quarter point cut.

But the two doves on the Committee Anatole Kaletsky, chief economic commentator of The Times and Sushil Wadwhani, a former member of the Bank’s MPC, felt that a larger 50 basis point cut was needed.

But Mr Wadwhani also expressed concern about the signals a drastic cut would give to the markets. He said: “I considered a 75 basis point reduction, but decided a bias to future easing would be a better strategy given that a reduction of this size at one meeting could have a counter prodcutive impact on confidence.”

The likelihood of a quarter point cut moved closer today as new figures showed that the rise in high street prices was beginning to slow. Shop prices rose by 0.2 per cent in March, down from a 0.4 per cent increase in February, figures from the British Retail Consortium showed.

Howard Archer, chief UK and European economist at Global Insight, an economic consultantcy, said: "This is an encouraging sign for the Bank of England and facilitates a 25 basis point interest rate cut."

The Bank’s MPC will also have welcomed official figures showing that the UK’s manufacturing sector weathered the current financial difficulties better than expected in February. Total industrial output rose by 0.3 per cent in February, after a 0.1 per cent fall in January. But analysts said this positive news for the economy would not be enough to offset the need for a quarter point cut.

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