Economists expect interest rates to be cut at least half a percentage point today.

That would bring rates down to 1.5% or less and move the Bank of England ever closer to the point when other steps are needed to prevent deflation.

Alistair Darling, the chancellor, told the Financial Times that 'the closer interest rates come down to zero, the more the normal transmission mechanism and the operation of monetary policy has to be looked at'.

But the chancellor insisted 'we’re not there yet'.

He implied that in those circumstances the Bank would lose its independence. 'Frankly, if you were to do anything further this is something that could only be done with the Treasury and the Bank of England working hand in hand,' he said.

Financial Times