To most Britons, bombarded each day by a barrage of grim headlines over the state of the economy, the case for a cut in interest rates two weeks ago must have seemed like an open and shut case. In reality it was far from that, as today’s news of sharp divisions over the decision among the Bank of England’s Monetary Policy Committee clearly demonstrates.

The MPC’s uncertainty over the rates verdict surprised the City, but serves to underline how the issues confronting the Bank are far from as black and white as most might suppose.

The hardline stance taken by the committee’s two arch hawks, Andrew Sentance and Tim Besley, in opposing this month’s rate cut is a timely reminder of the very real quandary over the conflicting pressures that the Bank faces over a faltering economy on the one hand and persistent and still-rising inflation on the other.

Since the MPC’s chief responsibility is to meet the inflation target, and curb price pressures whenever necessary, the intensity of its debate this month shows that, rightly, it is taking that mission seriously. It is not the Bank’s job simply to bow to an understandable clamour for rate cuts from business and the wider public.

Nor, it should be remembered, are lower interest rates a panacea for the economy’s present ills. Lower official base rates can do little on their own to offset the squeeze now being applied by the credit crunch. As Professor Besley suggested in a speech on Tuesday, that may be more effectively dealt with by the Bank’s £50 billion funding lifeline to the banking system.

Yet, base rates can and must also play a part in forestalling some of the worst case scenarios now confronting the Bank over the economic outlook.

It is right for the MPC’s members to wrestle with the quandary they face but there is a clear danger that excessive caution and hesitancy will see the Bank end up behind the curve.

Effective monetary policy is pro-active and pre-emptive and the threat that the credit crunch will trigger a vicious downward spiral is very real indeed, calling for decisive action by the Bank.

Sure, inflation risks persist. But the intensity of the squeeze on lending conditions now unfolding could have grave consequences for demand and output that will see those concerns evaporate by the end of the year.

The scale of that squeeze is underlined by this morning’s startling figures for mortgage approvals by the leading high street banks. The number of new loans approved in March plunged by 46 per cent from a year earlier to the lowest levels on record.

These data only emphasise the severity of the mortgage drought triggered by banks’ funding crisis that is now afflicting the property market. It is by no means clear that this will be swiftly alleviated by the Bank's funding lifeline.

The danger is that this sort of drastic slump in lending activity will greatly aggravate the housing downturn that is well under way, turning a necessary correction into a painful crash. The Bank likes to play down the knock-on effects of house prices on consumer demand, but it is hard to see such a house price slump not then undermining both consumer sentiment and demand. If the brakes were slammed on both the high street and housing market, the twin engines of the economy for the past decade, the economic outlook would be bleak indeed.

It is vital that the Bank averts such an outcome, and responsible but timely cuts in interest rates are now essential to doing so. If conditions turn brighter, faster, the MPC can quickly take those cuts back. The hesitancy of the committee’s hawks, while understandable, is excessive.

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