The Bank of England should keep interest rates on hold for a fifth month as inflation continues to rise and the pound tumbles, The Times Monetary Policy Committee (MPC) recommends today.

Seven of the nine members of the influential Times panel of economic and financial experts said rates should stay pegged at 5 per cent, but indicated that they may suggest rate cuts in the coming months.

But two members of The Times MPC said the Bank should take action now and cut rates to shore up the flagging economy, which has ground to a halt and is widely expected to plunge into recession in the second half of the year.

However, the Bank is being forced to walk a tightrope between spiralling inflation and the slumping economy. Inflation, which is at a 16-year high of 4.4 per cent, is set to peak at 5 per cent later this year before falling sharply.

The falling pound is adding to the Bank's dilemma as there are fears that the drop in sterling, which has fallen to record lows against the euro this week, could lead to further inflationary pressure as the cost of imports rise. However, the flipside of this is that exporters will receive a boost as their products become cheaper for those living abroad.

Sushil Wadhwani, former external member of the Bank's MPC and one of the most dovish members of the Times panal, said that a half-point cut was necessary to shore up GDP. "In recent months I have been arguing for a 25 basis point cut. However, the fact that the Bank has been slow to cut has increased the risks of a prolonged recession — they now need to 'catch up'," he said.

Anatole Kaletsky, chief economics commentator at The Times, called for a more modest quarter-point cut. He said the Bank should not wait for inflation to start falling before adjusting rates. "There is no longer any reason to delay monetary easing," he said.

But Charles Goodhart, Emeritus Professor of Banking and Finance at the London School of Economics, disagreed, arguing that the Bank had to wait until there was evidence that inflation was falling before making a move.

"The MPC would be unwise to take the gods of chance for granted, and cut rates before any decline starts to happen," he said.

But Mr Goodhart was one of several members who indicated that they may soon change their votes in favour of cutting rates. Rupert Pennant-Rea, former deputy governor of the Bank of England, said: "With luck [interest rate falls] are only a month or two away, but right now I favour no change."

Sir Alan Budd, former chief economic adviser to The Treasury and founding member of the Bank's MPC, said: "For the moment a cut in interest rates is not justified but we are moving towards one."

Bronwyn Curtis, chair of the Society for Business Economists, was emphatic that there could be no rate cuts in the near term in case this sparked a rise in inflation expectations, which the Bank is keen to avoid. She highlighted the risk that although falling oil prices and a drop in demand should act as a curb on prices, "a political or weather-related event" could send prices rising again.

Geoffrey Dicks, chief UK economist at Royal Bank of Scotland, agreed that near-term rate cuts were tricky.

"The domestic economy is in recession, more than anything it needs lower interest rates." But he argued that this was because the falling pound and the tax rebates granted by the Government to lower rate taxpayers, who lost out by the scrapping of the 10p tax band, acted as boosts to the economy.

"A falling pound and fiscal expansion both delay and limit the scope for interest rate cuts," he said.

The Bank of England will announce its rate decision at noon tomorrow.

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