IN the City all eyes will be on dealers' screens at noon today when the Bank of England announces the outcome of the two-day meeting of its monetary policy committee.

Pressure on the Bank to cut interest rates has been building up steadily over the summer and the clamour has reached a crescendo following the decision last week by the Federal Reserve Board to reduce short-term rates in the US.

The foreign exchange markets, which have just witnessed a huge plunge in the US dollar against the Japanese yen, have already discounted a quarter-point cut in UK rates. Sterling continued to hit fresh lows against the German mark

yesterday, but gained on the dollar.

Futures markets are betting on UK rates falling by half a point by Christmas. Economists, who have been less convinced than the financial markets that the Bank would accede to demands for the relaxation of its tight monetary stance, are now in line with a consensus that stretches from the City through business organisations and trade unions to the Treasury itself.

Chancellor of the Exchequer Gordon Brown has used his visit to Washington for a meeting of G7 finance ministers and the annual meetings of the International Monetary Fund and World Bank to nudge the monetary policy committee towards its first cut in rates since it was set up.

The strongest card in the rate-cutter's pack is the sharp slowdown in economic growth foreseen next year by the IMF and now confirmed by the Chancellor.

The Bank is being asked to deliver a pre-emptive rate cut because of this. Although it made no change in rates last month, it took the unusual step of issuing a statement with its decision. In effect this signalled the peak in UK rates in the current economic cycle. The global financial crisis might do the job of restraining inflationary pressures instead.

Since the Bank raised the base rate to 7.5% in June inflation rates have come down and most economic indicators have pointed to a slowdown in activity. Survey evidence has been extremely gloomy.

This may not be enough to

placate the hawks on the committee. Recent upwards revisions to GDP figures showed the economy was stronger than previously thought. Upward revisions to average earnings figures this week were also disturbing.

Another concern may be the speed at which sterling is now falling. This could sow the seeds of future inflationary pressure. Calls for the Bank to knock half

a point off rates at once ignore these pressures.

Meanwhile, the dollar suffered one of its most dramatic one-day slumps. It fell by 9% against the Japanese yen to an eight-month low. It also hit a 20-month low against the German mark.

A wave of yen buying was sparked off by significant progress on Japanese government plans to stimulate the economy and recapitalise the banks.

The Fed is expected to cut US rates further, while German and French rates are likely to stay where they are, at least until

the European Central Bank takes over control of monetary policy next year.

This is the stuff of which a weaker dollar is made. Since the strength of the dollar was a major contributor to the Asian and Russian financial crises nobody will be sorry if this story has

further to run.