The Bank of England held interest rates at a six-year high of 5.75 per cent for the fourth month running today, but expectations of a cut soon are growing as stocks slide and house prices fall.
Only a handful of analysts had expected the central bank to do anything but keep borrowing costs steady, although many were on alert for a surprise cut due to the troubles in financial markets which show no sign of ending.
As a result, the pound raced to a fresh 26-year high above $2.1079 while the FTSE-100 index of leading shares fell back. Government bonds also gave up some of their previous gains.
Most experts predict the BoE's Monetary Policy Committee will cut borrowing costs early next year as the economy slows in response to tighter lending conditions and rocketing oil prices.
"The outlook has certainly become more cloudy, but if the economic news continues in the vein we have seen over recent days then an early cut in rates seems both likely and necessary," said George Buckley, chief UK economist at Deutsche Bank.
But for now, the MPC is still probably worried about inflationary pressures as the cost of crude oil nears $100 a barrel and food prices soar with the economy expanding at full pelt and firms increasingly confident about raising prices.
Analysts are now awaiting next week's BoE Inflation Report which will contain the central bank's new forecasts and set out its latest thinking.
"Markets will not really get any insight into the details of the debate until we see the next quarterly Inflation Report in a week's time," said Daragh Maher, strategist at Calyon. "The arguments are not likely to be very different from those evident in the last set of MPC minutes."
Over the last month MPC members have given little indication they are readying to ease policy apart from arch-dove David Blanchflower who wanted a cut last month.
The market gyrations, however, continue. Stock prices around the world have been hit as more banks reveal how much money they have lost to the sub-prime US mortgage market. BoE Governor Mervyn King has said it could be a while before the full scale of the losses were known.