Deep interest rate cut likely

HOPES of a deep interest rate cut rose today after Chancellor Alistair Darling underlined his message that the Bank of England was now free to slash borrowing costs.

As a leading economist warned that Britain faced deeper recession without a one per cent cut next week, Mr Darling last night signalled that inflation was coming down to such an extent that rate cuts were now viable.

Today, Mr Darling repeated his message as he pointed out that the Bank had a remit to consider the risks of the slump facing the economy.

The US federal reserve last night cut its rate to just one per cent. The UK rate stands at 4.5 per cent and the City is expecting at least a half-point cut when the Bank meets next week.

Mr Darling stressed that neither he nor Gordon Brown would ever give the Bank's Monetary Policy Committee a direct order to cut rates, but he appeared to hint that that was what he expected to see.

"I am not going to tell the Bank of England what to do, because independence means just that, in the difficult as well as the good times," Mr Darling told Sky News. "The Governor is very aware of the need to do whatever he can to support the wider economy."

Mr Darling spoke after MPC member David Blanchflower called for aggressive rate cuts to stave off a deep recession.