The Chancellor today appeared to back a further cut in the Bank of England's interest rate in a bid to stimulate Britain's floundering economy.

Alistair Darling said that inflation was likely to fall, and that the Bank also had a remit to consider the risks of recession now facing the economy.

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

The Chancellor was speaking as he gave a raft of interviews to announce £4 billion of extra cash to be available for banks to lend to small and medium sized businesses.

"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," said Mr Darling, in an interview on Sky News.

"The Bank is rightly independent, and neither I nor my predecessor Gordon Brown will ever tell the Bank what to do. It's remit is sufficiently broad to enable it to tackle, first, inflation, and inflation is soon coming down, but also to support the Government in its wider economic objectives...

"The Governor is very aware of the need to do whatever he can to support the wider economy."

Mr Darling refused to be drawn into supporting David Blanchflower, a member of the MPC, who last night called for aggressive rates cuts as soon as possible to stave off the prospect of a deep and long-lasting recession.

The £4 billion in extra cash available to loan over the next two to three years that he announced today is intended to support small and medium sized enterprises (SMEs), which he described as a "crucial" sector of the economy.

"It is absolutely crucial as over half the people employed in this country work for SMEs and they account for a very significant part of our economy," said Mr Darling.

"As the economy slows down they are finding it more difficult, people are reluctant to pay their bills on time, and people are pulling in their belts. I want to do everything to help them that we can. I think the £4bn is a significant step forward."

In addition, Government had introduced a policy to pay its bills more promptly, the Chancellor added, restating a policy announced last week.

The high street banks who will take funding from the Government under the recapitalisation programme had been placed under an obligation to lend at levels similar to 2007, although banks would continue to have discretion to choose which businesses presented a good risk.

The new business secretary Lord Mandelson was setting up a committee of banks and business people to identify "blockages" in the system that were hampering business, and find ways to iron them out, said Mr Darling.

He refused to disclose how the Government proposed to pay for its surge of spending to bolster the economy, although he appeared to rule out tax rises in the immediate future. As the economy improved the nation's finances would recover, Mr Darling predicted.

“What I want to do is to ensure that we support the economy by making sure we maintain public spending. But as the economy comes through this, as more people are in work and businesses are more profitable, you get more money coming into the centre.”

When asked whether he planned to increase taxes to fund the spending, he said: “At this time what you really do not want to do is to be taking money out of people’s pockets, especially when people are struggling to make ends meet. I want to help people.

“What you’ve got to do is spend the money to support the economy now, but in the long run you’ve got to make ends meet.”

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