An aggressive one-percentage-point cut in interest rates is needed from the Bank of England today to shore up the economy in the face of the toll from the credit crisis and housing slump, The Times Monetary Policy Committee says this morning.

All nine members of the independent panel of financial and economic experts called for the Bank to stave off the threat of a deep recession with a rate cut of at least a half-point. A five-strong majority backed a cut of a full point. After last month’s emergency half-point reduction by the Bank, this would take base rates to 3.5 per cent.

Yet the remaining Times MPC members sounded warnings over the risks surrounding such a drastic move in rates, arguing that it could trigger a destabilising collapse in the pound, stoke inflation and prove ineffective in breathing life back into the economy.

In contrast, the majority of the panel pressed the case for decisive action and argued that the danger from inflation was passing as the rapidly growing weakness of the economy would eliminate price pressures.

Bronwyn Curtis, head of global research for HSBC, said: “Bold steps are needed to halt the downward spiral in confidence caused by the negative feedback between the banking sector and the real economy. Doing less than one percentage pointcould undermine the Bank’s credibility.”

Sir Alan Budd, former chief economic adviser to the Treasury and a founding member of the Bank’s rate-setting committee, agreed that unusual steps were needed. “A cut of a percentage point should not be seen as panic action. It is exceptional but conditions are exceptional.”

Sushil Wadhwani, the leading investment manager who was previously an external member of the Bank’s MPC, cautioned that it had “been behind the curve” in cutting rates. “At this vulnerable point, doing less than the markets expect would be a mistake,” he said.

Anatole Kaletsky, chief economic commentator ofThe Times, also advocated a full-point cut. “If 1 per cent is the appropriate rate for the US, the same should be true of Britain. The Bank must take urgent steps,” he said.

Martin Weale, director of the National Institute of Economic and Social Research, argued that there was no reason not to cut the rate by a full percentage point. He cautioned, however, that there was a risk that expectations of the benefits might be exaggerated, with lower rates unlikely to persuade consumers to spend or businesses to invest.

Charles Goodhart, of the London School of Economics and a former MPC member, called for a three-quarter-point cut, arguing that the Bank needed to make clear that it would not simply deliver the reductions that markets expected and was attentive to inflation risks and the threat of a plunge in the pound.

Professor Goodhart disputed that inflation could now be seen as “yesterday’s problem”, because Saudi Arabia could contrive to keep oil prices from falling farther. He also expressed anxieties over the danger of a “disorderly collapse” in the exchange rate.

The remaining three Times MPC members all said that a half-point cut this month was sufficient. “A full-point in a single month is not the right approach,” Rupert Pennant-Rea, a former Bank Deputy Governor, said. He called for “firm but gradual” action from the Bank.

Sir Steve Robson, former Second Permanent Secretary at the Treasury, said the Bank should limit a cut to a half-point to make clear that it was independent and “does not dance to the tune of politicians”.

He joined Mr Pennant-Rea in arguing that recent sharp falls in the pound were, in any case, equivalent to a quarter-point cut in base rates.

Geoffrey Dicks, chief UK economist for Royal Bank of Scotland, said rates needed to fall by two full points in the next few months, and the decision over how to achieve this was tactical.

“I would go for a steady drop of good news, cutting rates by a half-point this month and signalling there is more to come,” he said.

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