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There are some signs of the wider economy faltering. Last month, the CIPS purchasing managers’ survey of services, the dominant sector of the economy, showed its activity at a four-month low.

Pressure on the MPC to act was stoked this week after the International Monetary Fund sounded a warning that the credit squeeze is set to persist and is likely intensify, with losses to financial institutions from the crisis sparked by the US housing slump set to balloon to almost $1 trillion (£500 billion) and perhaps still more.

In its latest assessment of global prospects yesterday, the IMF also said that the United States would suffer a mild recession this year and recover only slowly in 2009, while there was a one-in-four chance of a global recession.

However, today’s rate cut from the Bank comes against an awkward backdrop for the MPC, in which soaring food and energy costs are still driving inflation higher despite faltering growth. Mervyn King, the Bank’s Governor, has repeatedly cautioned that these conflicting pressures leave the MPC facing a “difficult balancing act”.

No pressure, Mervyn

The panel of economic experts of The Times has underlined the trickiness of the decision on interest rates facing the Bank

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BACKGROUND

• High street slows ahead of rate cut hopes

• Housing market: case studies

• The one certainty is the uncertainty

• Best thing is to sit tight and watch it on TV

Related Links

• Full text of Bank of England statement

• Will my mortgage rate fall?

• Read the panel's views in full

Multimedia

• Grainne Gilmore on the interest rate cut

The Bank’s inflation worries have been inflamed by widespread evidence of companies in both manufacturing and services attempting to raise their prices.

The MPC was also concerned over signs that expectations of future inflation among household and businesses have risen, threatening to stoke up wage demands and encourage firms to raise prices.

Inflationary pressures are being further fuelled by steep falls in sterling against the euro, with the pound this week tumbling to a record low against the single currency.

The Bank's dilemma left economists divided this afternoon over whether the latest quarter-point rate cut will swiftly be followed by another, perhaps as soon as next month, ahead of the MPC’s next quarterly Inflation Report.

Much will depend on how events at home and around the world unfold but after today’s move the MPC’s hawkish faction, at least, may want to pause for breath and wait for developments.

At the European Central Bank (ECB), Jean-Claude Trichet called for price and wage restraint as he announced ECB interest rates across the 15-nation Eurozone would remain at 4 per cent.

Mr Trichet also spoke of the need to counter expectations that prices would climb further after Eurozone inflation hit a 16-year high of 3.5 per cent in March. The target is just below 2.0 per cent.

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