The Bank of England yesterday signalled a cut in interest rates in coming months, as it forecast a sharp slowdown in growth next year, but it did not appear in any particular hurry to cut borrowing costs.

Although 44 of 51 economists polled by Reuters in the immediate wake of the Bank's latest quarterly inflation report predicted base rates would fall to 5.5% or less from their current 5.75% by March next year, only six forecast a reduction as early as next month.

The median forecasts in the news agency's poll have base rates still at 5.75% at the end of this year, at 5.5% by the end of the first quarter, and at 5.25% by the close of 2008.

The latest forecasts of the Bank's Monetary Policy Committee put annual consumer prices index inflation at around the 2% target set by the government on the favoured two-year time horizon, based on market interest rates that anticipate a fall in base rates to about 5% by 2009.

If rates were to remain at 5.75%, the latest MPC forecasts put inflation below 2% two years out. Even assuming the fall in interest rates, which is priced in by financial markets, the MPC's latest forecasts have annual UK gross domestic product growth slowing sharply from recent 3%- plus levels and bottoming out at about 2% during the course of next year, before recovering.

Yesterday's report marks a 180-degree shift by the MPC from a tightening bias in its inflation report in August to an easing stance.

The global credit market crisis, which has its roots in massive default on home loans by US households with poorer credit ratings served by the sub-prime mortgage sector, kicked off in earnest the day after the Bank published its last quarterly inflation report on August 8.

The revelation on September 13 that Northern Rock had had to line up emergency funds from the Bank of England as lender of last resort triggered the first run on a major UK bank in living memory. This was halted only when Chancellor Alistair Darling stepped in to guarantee customers' deposits.

Asked yesterday if he had considered resigning over the Northern Rock issue, which arose because the mortgage bank was not able to raise money in its normal manner in wholesale markets, Bank of England Governor Mervyn King replied: "No."

The Federal Reserve, with a half-point cut in benchmark US interest rates on September 18 and a quarter-point reduction on October 31 which took them to 4.5%, has moved swiftly to attempt to counter a sharp slowdown in the world's largest economy resulting from American housing market troubles.

Lucy O'Carroll, director of research at Bank of Scotland's treasury division, predicts the first cut in base rates will come in February.

She noted the inflation report signalled a fairly shallow trough of 5% for rates but highlighted her view that this might come significantly sooner than the fourth-quarter of 2009 - the timing indicated by market expectations of base rates.

However, she highlighted signs in yesterday's report of a "substantial amount of disagreement" among the nine-strong MPC about the latest growth and inflation forecasts and the risks surrounding them.

O'Carroll said: "What the forecasts show is ... the (MPC) thinks that, if interest rates are cut during the first quarter of next year with a trough at 5%, a fairly shallow trough achieved later in 2008 (or) early in 2009, it can help to offset a fairly sharp slowdown in economic activity next year, bring the economy back to trend growth in 2009 ... hitting consumer price inflation of 2% in 2009, which is meeting its inflation remit."

However, highlighting possible threats to this benign take on the situation by the MPC, O'Carroll added: "It (the MPC) does clearly acknowledge that the risks have increased since its previous report in August and that the uncertainties are larger...

"There is by no means absolute clarity on the future. It is just symptomatic of the difficulties they (MPC members) are facing at the moment dealing with a situation where the economy is slowing - they acknowledge that slowdown, but also where the inflation risks remain."

Annual CPI inflation surged unexpectedly back above the Bank of England's target in October for the first time since June - jumping from 1.8% in September to 2.1% - official figures showed on Tuesday.

National Statistics said on Monday that annual growth in UK factory gate prices accelerated to 3.8% last month - the fastest since December 1995.

Further clues on the timing of any interest-rate cut will come next Wednesday with publication of minutes of the MPC's November 7 and 8 meeting, at which base rates were held at 5.75%. The MPC raised base rates by a quarter-point on five occasions between August last year and July 5 this year.

The Bank of England attributed its expectations that annual CPI inflation will be above 2% next year to higher energy prices and the overall depreciation of sterling, which suggests upward pressure on import prices.

Although the pound has been hitting 26-year highs against the dollar, it has been sinking against the euro and yesterday hit a four-year low against the single currency.