Interest rates could be cut even further

In their last meeting on 6 November, the Bank's Monetary Policy Committee (MPC) unanimously voted to cut interest rates from 4.5% to 3%, the biggest single move in 53 years.

However, minutes from the meeting reveal that the MPC was tempted to go even further, cutting rates to 2.5%, and may well do so in the future.

The Bank's own calculations showed that a bigger cut would be needed to stop inflation falling too far below its target next year, but the committee finally decided that such a big cut would come as too much of a shock and potentially lead to too sharp a fall in the pound.

IHS Global Insight economist Howard Archer said: ‘If (the fiscal stimulus) is at the top end of the range the Bank is unlikely to cut interest rates by more than 0.5% in December. However, a smaller fiscal stimulus could see the bank cut interest rates by up to 1% next month.’

Meanwhile, a spokesman for Capital Economics predicted that interest rates would fall to 1% or even lower in the next year.