The Bank of England must lower interest rates to tackle the continuing crisis in the money markets, the Times MPC says today in its first call for a cut in rates for more than two years.

The Times’s panel of experts, who shadow the work of the Bank’s Monetary Policy Committee, voted by seven to two for an immediate cut in rates by the Bank MPC, which is meeting today. The last time the panel voted for lower rates, in August 2005, the Bank followed its lead by loosening policy that day. Almost every member of the Times MPC highlighted the squeeze on interbank rates. One-month sterling interbank-offered interest rates yesterday rose to 6.75 per cent, a full percentage point above Bank Rate and the highest level in nine years.

Bronwyn Curtis, who chairs the Society of Business Economists, said: “The stresses in the money markets are not easing. A 0.25 per cent cut in the Bank Rate is needed to help to normal-ise the money markets and offset the impact of the elevated market rates we have had since early August. Three-month Libor was already high (6.27 per cent) at the November meeting compared to the overnight rate; it is now more than 35 basis points higher.”

Sir Steve Robson, former Second Permanent Secretary at the Treasury, said there was “no case” for market rates to be so high, given the reasonable health of the real economy. The Bank should cut rates and accompany the move with “a major injection of liquidity into the markets”, he said.

Another theme of Times MPC members’ comments was the need for the Bank to get ahead of the market rather than waiting to see whether the economy slowed.

Sushil Wadhwani, a former member of the Bank’s MPC, voted for a cut. He said: “A failure to be preemptive could mean that interest rates would need to fall by more later on. The US Federal Reserve has acted in a preemptive fashion to forestall economic weakness. The Bank of England’s credibility already took a very significant knock because of the Northern Rock debacle. It is risky for the MPC to be seen to have also been behind the curve in terms of forestalling economic weakness.”

Geoffrey Dicks, chief UK economist for Royal Bank of Scotland, said: “Now that the November Inflation Report has established the economic case for lower interest rates, there is no reason to delay any further. All the evidence points to the economy slowing more sharply than is necessary to stabilise inflation at the 2 per cent target and the downside risks become more apparent on a daily basis. The MPC was aggressive in raising rates on the way up and should be equally preemptive on the way down.”

Martin Weale, director of the National Institute for Economic and Social Research, said that although he wanted the Bank to cut rates, it should avoid giving the impression it was doing so to prop up the housing market. He said: “The main case for the cut is that the July increase was unnecessary. The Bank cannot be expected to prevent, or try to prevent, slower growth next year.”

Although no member was decisively opposed to cutting rates, two said they would prefer to wait for another month or so before easing policy.

Sir Alan Budd, a former member of the Bank’s MPC, said: “The question is whether the evident increased cost and reduced availability of credit will slow down growth in the economy to such an extent that inflation will fall below the target. So far, there is no strong evidence that this is happening.”

Rupert Pennant-Rea, a former Deputy Governor of the Bank, was the most hawkish member of the panel, calling the decision “one of the most difficult calls the MPC has faced”.

He said that cost pressures meant that the chances of inflation being above its target in two years, time remained “uncomfortably high”. In normal circumstances, the Bank could even be raising rates, he said.

He added: “In today’s world, though, everybody knows that credit conditions are likely to slow the economy in 2008, and presumably have a corresponding effect on inflation in due course. The verdict then might tilt towards reducing interest rates . . . On balance, I would prefer to wait another month or two – not least because cutting now might be seen as an attempt to offset weakness in the real economy, which is not the MPC’s responsibility.”

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