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Bank Deputy In Rate Cut Hint Despite Prices

Mervyn King's deputy at the Bank of England today raised hopes of a further interest rate cut but stressed the threat of inflation made the decision difficult.

Deputy Governor Sir John Gieve said the financial market turmoil, and its impact on the economy, strengthened the case for a rate cut.

'Growth is slowing quite sharply now, in part because of the rises in interest rates last year. That in itself might justify a progressive shift in policy from a restrictive to a more neutral stance,' he said.

A 'neutral' cost of borrowing is widely seen by economists as 5% - half a percentage point lower than the current rate.A 'neutral' cost of borrowing is widely seen by economists as 5% - half a percentage point lower than the current rate.

However, Gieve said there were continuing inflation pressures from higher food and energy costs. 'These are likely to raise our inflation rate well above target in the coming months at a time when short-term inflation expectations remain uncomfortably high.']

Extreme nerves over the state of the banking sector had already sent the currency markets into a spin.