A reduction in British interest rates is expected to be announced today by the Bank of England in response to gathering signs of reducing inflationary pressures and a sharp slowdown in growth.

But City economists are divided on whether the bank's monetary policy committee (MPC) will sanction a 0.25 per cent reduction in line with previous quarter-point changes or the larger 0.5 per cent urged by industrialists.

The MPC was criticised last month for sanctioning a 0.25 per cent cut to 7.25 per cent. Many economists said the reduction was "too little, too late" to deal with the rapidly changing economic circumstances. A majority of economists polled by Reuters still believe the bank will continue with its policy of making quarter-point changes and cut rates by 0.25 per cent despite gathering concern about a possible recession next year.

However, the case for a larger reduction has been strengthened by the admission of the Office of National Statistics that its figures on wage inflation have been wrong. An acceleration in wage inflation detailed in the figures was one of the main factors prompting the MPC to lift British rates another notch in the summer.

Now that the bogy of wage-push inflation has been laid to rest, there are very few other signs of inflationary pressures to worry MPC members. If the economy really has become "ex-inflation", the MPC may feel that a 0.5 per cent reduction is the appropriate response to the economy's "ex-growth" prospects.