Even as the economy's fast-fading fortunes have turned up the heat of the monetary policy committee to cut interest rates, simmering inflationary pressures have forced its members to contemplate not lowering, but raising the cost of borrowing.

Five of the nine members who testified to MPs last month, led by Mervyn King, the Bank's Governor, revealed they considered a June rate rise - the first time this has been discussed for a year.

Betting on a rate increase in futures markets has seen them price-in three increases over the next year.

But even the hawkish Mr King has said he was surprised by what most experts see as the overly-aggressive bets on dearer money in the markets.

The Governor has played down the threat of a rate rise, arguing that “there is not a generalised rise in prices and wages caused by rapid growth in the amount of money spent in the economy”, suggesting that the present highs in inflation should prove difficult but temporary.

Charlie Bean, Mr King's new deputy, has emphasised the dilemma facing the Bank, warning that both the surge in oil prices and the credit crunch could have further to run, he argued: “Both these shocks depress activity but have conflicting effects on inflation.”

Much City speculation focuses on the stance that Spencer Dale, Professor Bean's successor as chief economist and the MPC's newest member, will take.

So far, the assumption is that, as a protege of the hardline Mr King, he may take a hawkish line.

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