The quandary facing the Bank of England today over how to respond to growing fears of a recession in the United States and a global downturn is highlighted this morning by sharp divisions in The Times Monetary Policy Committee over how aggressively the Bank should react.

Doves and hawks on the independent panel of economic and financial experts were split three ways over how the Bank's own MPC should respond to mounting threats to the British and world economic outlook.

Seven of the nine Times MPC members advocated a further cut in interest rates today, on the heels of the Bank's quarter-point December reduction, while two hawks believed that persistent inflationary risks mean that the Bank should keep rates unchanged, as it did last month.

However, two of the seven arguing for a fresh decrease in borrowing costs believed that a more drastic move to shore up the economy against the risk of a severe slowdown is required, with an immediate half-point rate cut sought, taking a lead from the aggressive action by the US Federal Reserve last month.

Virtually all City economists see a quarter-point rate cut as certain today after the Fed followed an emergency three-quarter-point cut in US rates last month with a half-point reduction last week. A half-point UK cut is, however, seen as extremely unlikely after Mervyn King, the Bank's Governor, last month highlighted the MPC's difficult balancing act between risks to growth and inflationary threats.

The Bank's dilemma was underlined by the stance of the two hawks on the Times MPC. One, Sir Steve Robson, former Second Permanent Secretary at the Treasury, said: “All the inflationary signals point to unchanged rates. The CPI is above target and set to rise. Input price rises are at their highest since the survey began in 1999. Output price rises are at their highest for three years. Inflationary expectations among both firms and households are worryingly strong.”

Claudio Costamagna, a former vice-chairman of Goldman Sachs, said: “There is no need to give clear direction, and the debate between inflation and growth is still wide open.”

At the opposite extreme, Sushil Wadhwani, a former member of the Bank of England's MPC, and Anatole Kaletsky, The Times's chief economic commentator, believed that a half-point cut in UK rates today was vital to protect growth.

Mr Wadhwani said that weakness in the American economy, coupled with weak output and consumption in Britain and falling oil prices, would justify a decisive rate cut. He said: “Like the MPC, the Federal Reserve was initially slow to cut interest rates during 2007. Consequently, the Fed is having to catch up and accelerate its rate cuts, correctly pointing out that it is best to attempt to pre-empt the feedback effects that can occur when an economy starts to weaken significantly. It is also very important for the MPC to be pre-emptive and to take similar action.”

The rest of the Times panel argued for a quarter-point move today. However, Martin Weale, director of the National Institute of Economic and Social Research, acknowledged that there was “a case for waiting for the economy to slow a bit more before making a cut”. Rupert Pennant-Rea, a former Deputy Governor of the Bank, concurred. Although he voted for a quarter-point cut, he said: “There is an argument for delaying by a month.”

Geoffrey Dicks, UK economist for RBS Global Banking, was more doveish in outlook. He said: “The MPC's response to the credit crunch so far is inadequate - one 25 basis-point cut is not enough to offset the rise in market rates and reduction in credit availability that we have had in the last six months ... The debate should be between cutting 25 basis points and 50 basis points, not on whether to cut.”

Bronwyn Curtis, chairman of the Society of Business Economists, and Sir Alan Budd, a former member of the Bank's MPC, said that a quarter-point cut was enough for now.

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