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Indicators suggest that the UK economy is slowing and the Bank of England lowered the interest rate one-quarter percent in response.The decision had been expected, but in the light of recent rate increases by power company E.ON, it will be welcome news to borrowers.

Few people doubted that the Monetary Policy Committee would cut the rate, according to Ray Boulger of John Charcol. The MPC had been heavily criticized for refusing to lower the rate for a second month in January. There has been considerable talk of lowering the rate to help stabilize the economy.

Mr. Boulger says that, in effect, the MPC is “running hard to stand still.”

The bank decided on a modest rate cut to counter the threat of inflation in the context of slowing economic growth.

The MPC meets every month and makes a decision on interest rates that reflects the votes of the nine members.

Borrowers could see interest rates of 4.5 percent by the end of the year, says forecasting firm Global Insights.The firm sees rates falling further to 4 percent in the first half of 2009.

The firm expects that slower than expected growth will force interest rates to 4.5 percent by the end of 2008 and to 4 percent in 2009. Nonetheless, they do not predict that the UK will experience a recession, says Howard Archer, chief of European and UK economics for Global Insight.

Growth in GDP will “equal the weakest performance since 1992,” hovering at 1.8 percent in 2008 and 2009, according to Mr. Archer.

Experts expect the interest rate to be cut at least one-quarter of a point this Thursday, when the decision will be made. It is currently at 5.5 percent.

This week’s decision by the Bank of England to cut interest rates has the potential to increase inflation, cautions Fool.co.uk.According to the price comparison service, many experts had anticipated the move to lower the borrowing rate to 5.25, a reduction of a quarter-point. Nonetheless, higher oil prices and increases in energy costs have already stimulated inflationary pressure, and the rate cut could increase that pressure.

The fear of recession seems to be more important to the monetary policy committee than the threat of inflation, according to Fool.co.uk.

David Kuo, head of personal finance for the web resource warns consumers to shop for the highest return on their savings. The Bank of England may choose to ignore the problem, but inflation can eat into personal savings.

The demand for secured loans is expected to increase during the first three months of this year as other sources of credit dry up, according to the Bank of England.