The Bank of England is expected to cut interest rates by a quarter of a percentage point to 5% later this week, according to city experts.

It is thought the Bank will make the cuts at its monthly meeting on Thursday despite the impact the move could have on inflation, the experts said.

It will be the Bank's third rate cut since December, although homeowners have failed to benefit much so far after lenders tightened their credit conditions, increasing rates on many of their products and even withdrawing others.

Members of the Bank of England's monetary policy committee (MPC) will be concerned the current uncertain conditions could feed through into sharply lower growth in the UK economy.

Howard Archer, chief economist at Global Insight, expects rates to finish the year at 4.25%.

He said: "We believe that the increased downside risks to growth stemming from tighter credit conditions, coupled with signs that the economic downturn could be deepening, will lead the MPC to cut interest rates from 5.25% to 5% on Thursday, despite the inflation pressures."

The Bank is charged with keeping inflation at around 2%, but the official measure, the Consumer Prices Index, is currently above target at 2.5%.

The committee's inflation-controlling mandate means it needs to be more cautious than policymakers in the US, where rates have dropped sharply this year.

Economists were until recently predicting that the MPC will hold off until May before easing rates further.

Philip Shaw, chief economist at Investec Securities, said: "We consider that a June easing to 4.75% is likely to follow this week's reduction and after that, the critical determinant will be whether there are signs of normalisation in credit markets.

"There are mounting risks that credit conditions will remain dysfunctional for some time to come, in which case the Bank rate could fall to 4% or below."

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