The guard is changing in Threadneedle Street this week. Just as Britain's rapidly deteriorating prospects are raising pressure on the custodians of the nation's economic fortunes at the Bank of England, there will be an important reshuffle among the nine figures who meet at the Bank each month to set interest rates.

When the members of the monetary policy committee (MPC) gather on Wednesday and Thursday to set interest rates, Rachel Lomax will have been replaced as Deputy Governor by Professor Charles Bean, while Professor Bean's old MPC chair as the Bank's chief economist will be filled by Spencer Dale, one of the most respected lieutenants of Mervyn King, the Bank's Governor.

Yet even as this episode of musical chairs in the Bank's inner sanctum sparks City speculation over how it may shift the balance of power at the MPC, economists expect that the changing line-up is unlikely to herald any shift in interest rates, at least for now.

More than ever this month, the MPC remains stuck firmly between a rock and a hard place: pulled in two directions by the conflicting trends of faltering growth and rising inflation pressures, both of which have grown worse over the past four weeks. Despite market speculation over the growing risk of a rate rise, most economists are near certain that these opposing forces will see the Bank hold its fire again this month.

Here is our monthly guide to the issues confronting the committee:

Growth and activity

Since the MPC met a month ago, evidence has piled up that the economy is sliding into the grip of a serious slowdown, if not an outright recession. Crucially, revised national accounts saw growth in the economy downgraded in the first quarter to 0.3percent, just half the pace registered in the previous three months.

The deepening slump in house prices continues to be a key factor in undermining growth and future prospects.

The Nationwide Building Society reported that house prices fell in June for the eighth month in a row, with a 0.9 per cent fall leaving prices down by 6.3 per cent on a year earlier, the steepest annual decline since December 1992. Fears that the slide in the market will quickly mutate into a crash were inflamed as the Bank's figures showed that approvals of new mortgages for homebuyers slumped in May to just 42,000, the lowest since at least 1986, and down by almost two-thirds on a year ago.

So far, signs that house price woes are undercutting consumer spending have been pretty limited. The City was perplexed last week as official figures showed that the amount of goods sold on the high street leapt by 3.5 per cent in May. However, many experts see that as a last gasp from badly-squeezed households - a prognosis supported as Marks & Spencer last week reported a slump in its sales by more than 5 per cent over the past quarter.

The national accounts also showed that households were hit in the first quarter by the sharpest fall in disposable incomes, after deducting inflation, taxes and rising interest bills, since autumn 1999. The 1 per cent drop in real disposable incomes saw families resort to drastic curbs in savings, which fell to their lowest since 1959 in the first quarter.

Key surveys last week of manufacturing, services and construction pointed to all three sectors shrinking simultaneously for the first time since 2001, with the slump in services, the engine-room of the economy, the worst seen since that year.

Costs and prices

Even as growth has stuttered, there has been scant reassurance for the Bank in the past month over inflationary pressures, with growing talk of the return of Seventies-style “stagflation”.

Mr King was forced to revive the lost art of letter writing last month, penning an explanatory letter to the Chancellor after consumer price inflation rose to 3.3 per cent. The Governor has to write to the Chancellor when inflation climbs more than 1 point above the Bank's 2 per cent target, explaining what the MPC is doing to bring it back under control.

Surveys of manufacturing and services also continued to show that companies' costs and the prices they are charging their customers are rising at record, or near-record, rates.

Price pressures continue to be stoked by sharp falls in the pound, and surging oil prices. Sterling's slide raised Britain's import bills to a 12.7per cent annual pace in April, the fastest for 15 years. Oil prices set new peaks above $140 a barrel.

International economy

News from Britain's rival developed economies on both sides of the Atlantic has remained dire.

The European Central Bank fuelled fears of a sharp downturn in the eurozone as it pressed ahead with its own quarter-point rise in interest rates in a bid to quell inflation. Its action came despite surveys showing that the eurozone's manufacturing and services sectors are contracting.

In the United States, survey data also showed that the services sector shrank last month, and although manufacturing activity staged a surprise rebound, job losses across the economy mounted.

Rates verdict

No change. While the unrelenting build-up of inflationary pressures will almost certainly mean that the MPC discusses the potential need for a rate rise, the rapidly accumulating woes facing the economy make it near-certain that the Bank will stay its hand this month.

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