How can there be any doubt that the Bank of England will cut interest rates next week? Just look around. Collapsing banks, bankrupt retailers, frozen credit markets, rising unemployment, gloomy consumers, tumbling stock market and now manufacturers at their most pessimistic for 17 years.

Yet there is doubt. Even after yesterday’s grim news, it is by no means certain that the Bank will act. The reason is that the committee that sets interest rates has a simple task – to keep inflation at about 2 per cent. And it is not doing a very good job: it has kept rates high to try to slow the economy and restrain price increases. But inflation is still expected to top 5 per cent.

To announce a rate cut and then have to admit that inflation has risen to more than double the target would be tricky, at least in terms of presentation. And presentation is important for the Bank.

Since gaining its independence in 1997, the Bank has consigned to history Britain’s hopeless record of containing inflation. It will defend that hard-won reputation fiercely. This is not just a matter of pride. Expectations play a big role in inflation. If people think that the authorities are happy to let inflation rise, it probably will.

Inflation expectations are already worryingly high and the Bank may decide that cutting rates is too big a risk. But there are signs that many of the committee members think the bigger risk is of a severe economic downturn.

They could justify a cut on the ground that while inflation may keep rising for another couple of months it is then expected to fall quite quickly. Retailers’ costs may be rising fast, but with consumer spending very weak shops will struggle to pass on those higher costs.

There is little doubt that the Bank will cut rates this year. So why not do it now? For many people worried about their jobs, next month may be too late.

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