Interest rates will be cut again before Christmas despite yesterday's news that inflation is at a 16-year high of 5.2 per cent, experts believe.
Analysts suggest that, as well as a half point cut soon, the Bank of England's cost of borrowing could fall as low as 2 per cent next year. It is thought the Bank will take the axe to rates, currently 4.5 per cent, in a desperate attempt to restart the crippled economy.
It will have room to do so because, following yesterday's figures, inflation is now expected to fall sharply. Some economists even believe inflation could plunge to 1 per cent by next autumn as the economy deflates and the cost of living falls. But the experts also warned that a rush to cut rates is 'too little, too late' because Britain is already in what is predicted to be a long recession.
Treasury spokesman Vince Cable said the Bank must be 'very bold'. He added: 'We need a fiscal stimulus to get the economy moving.'
The Bank of England's primary aim is to keep inflation as close as possible to the Government's target of 2 per cent, which is why it has held off cutting rates. But the highest inflation rate since 1992 - blamed largely on the crippling price rises by energy giants of up to 35 per cent - has now peaked.
And, for the first time in a decade, economists think the Bank could cut rates by a half-point twice in a year. Last week, there was an emergency half-point cut in a coordinated move with other countries as the financial crisis deepened.
