Hopes for an early cut in interest rates were boosted by news that factory gate inflation - the price of goods as they leave the factory - is falling at its fastest rate since records began in 1986. 

The Office for National Statistics said that output price inflation for manufactured products fell to 9.7 per cent in August, down from 10.3 per cent a month earlier.  Falling oil and energy prices meant that input prices - the cost of raw materials - fell by two per cent between July and August. 

Consumer Price Inflation (CPI) is still headed towards five per cent as previous increases in costs feed through into retail prices, but the fall in oil prices from around $147 a barrel in July to about $100 a barrel today plus a sharp slow down in consumer spending could lead to a rapid decline in inflation in 2009.  The expectation in the City is that, once inflation is seen to be falling, the Bank of England will act quickly to cut interest rates.