Only once before in its first decade as independent arbiter of UK monetary policy has the Bank of England cut interest rates in December. That was in 1998, when rates were slashed by a full half-point, part of a sustained monetary easing that continued right through to the following summer.

During a nine-month period, rates came down seven times - from a high of 7.5% to 5%. Nobody is anticipating monetary policy drama on that scale now.

But what the current governor, Mervyn King, had to say about the short-term prospects for the UK economy yesterday, after publication of the Bank's latest quarterly inflation report, left City economists forecasting one, two, perhaps even three successive quarter-point cuts in the cost of borrowing by the end of next year.

That would also take rates down to 5%. And some analysts are even predicting the first cut could arrive in the run-up to Christmas, as the Bank's Monetary Policy Committee wrestles with what could turn out to be, in the governor's own words, a very sharp slowdown.

In the wake of the global financial turmoil that followed the unwinding of the sub-prime mortgage crisis in the United States - leaving Northern Rock owing the Bank of England, as lender of last resort, about £20bn (and rising) in lifeline credit - King and his MPC colleagues now face an acute dilemma.

In the short term, thanks to rising risk premiums around the world and an already-slowing US economy, compounded by the five quarter-point rises the MPC had implemented here between August 2006 and this July, slower growth now looks inevitable.

How much slower is uncertain, with much harder times in the commercial and residential property markets a distinct possibility, as is a further correction to equity markets. The Bank's chief economist, Charles Bean, admitted as much on the former.

And, despite more encouraging news yesterday from HSBC and Bear Stearns on the likely scale of banking write-downs on sub-prime related assets on their books, the unravelling of the impact of the credit crunch on investor sentiment on global stock markets has some way to go yet.

Much less evident yet is any sustained weakness in the UK consumer's propensity to go on hitting the plastic on our high streets. And until that crystallises, the more hawkish tendency on the MPC may prove reluctant to ease monetary conditions too quickly.

The MPC's dilemma is made all the sharper by what is happening to inflation. Having eased below the Bank's central target of 2% in recent months, price inflation jumped back up last month to an annualised 2.1%. And there is almost certainly more to come, notably pressure on the cost of fuel and sharply rising food prices.

Juggling slowing growth and rising inflation is not where any rate-setter would choose to be. The Bank has eased its discomfort for now by projecting above-target inflation and lower GDP growth in the short-term. It then projects, assuming market interest rate expectations, a return to target price rises and trend growth at the two-year time horizon set it by government.

Risks to that forecast are now judged to be balanced for inflation but on the downside for growth. In August, at the time of the Bank's last inflation report, the risk to its inflation forecast was thought to be on the upside, but balanced on growth.

However, if that's so, as Simon Ward of New Star pointedly put it yesterday, why did the rate cutting not begin last week? Why wait until December, or the first quarter of 2008? Until we see the minutes, we can't say how divided opinion on the MPC already is. A very close vote this month would inevitably heighten expectations of a cut in December.

There are, however, other pressing issues for Threadneedle Street. Not least how to bring the Northern Rock saga to a clean conclusion. According to details of a confidential sales memo sent to possible bidders for the stricken Newcastle-based mortgage bank, leaked to a Financial Times website, it could still be drawing down up to £6bn from the Bank of England by 2010.

And there are other signals that meaningful bidders are pushing to have accumulating interest due to the Bank - as much as £2bn - written off as the price for taking it off the state's hands. King will not like that. But he won't like the prospect of having remnants of Northern Rock still on his books for years to come either.

We can only hope that the risk of reputational damage, let alone King's prospects of a second term as governor, do not cloud judgments about how quickly and how far to cut rates to both avoid a damaging slowdown in growth and keep prices within the target range set by the Treasury.