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The last few weeks has seen increasingly feverish speculation about whether or not the Bank of England monetary policy committee (MPC) would cut interest rates in December. While many commentators had responded to the November inflation report's hint of cuts to come with predictions of two or even three cuts in 2008, it was only recently that the expectation of a December cut seemed to gather momentum.

By yesterday, it appeared the decision was on a knife edge. Global Insight's chief UK and European economist Howard Archer said: "We are going for no change, but we wouldn't be surprised if they do. It's right on the margin." Meanwhile, Ian Kernohan of Royal London Asset Management said: "On balance, I'm still looking for a cut, but it's a very close call."

The fact that those either predicting a cut or a hold were far from sure about the outcome may well be reflected in the final voting, something that will not be known until December 19th. The MPC had to grapple with fears about upside risks to inflation on the one hand and fears of too severe an economic slowdown on the other.

In the end, the Bank's own statement on its decision revealed that the latter factor was considered more significant, with the economic slowdown likely to hold back the inflationary tide in its own right. This may reflect a similar analysis for the current situation as it did for the longer term, as explained in the November inflation report - specifically that the way the economy was going meant that there were sufficient restraining pressures on inflation to permit cuts without the inflation rate slipping off target.

The housing industry, which had been calling for a rate cut as prices fell, has naturally welcomed the news. Michael Coogan, director general of the Council of Mortgage Lenders, said: "A reduction in interest rates is exactly what the market needs and will benefit consumers. This will reduce the risk of payment shock for the 1.4 million borrowers coming off fixed rates in the next year."

Another welcome came from the National Association of Estate Agents, whose chief executive Peter Bolton King said: "I'm hopeful this will be the turning point in consumer confidence that will set the market back on track again."

But while the rate cut may be a start, more may be needed to ensure there is a genuine recovery. Scottish Widows Investment Partnership believes this will indeed happen. Chief economist Richard Dingwall-Smith said: "WIP expects that this first cut in interest rates will be followed by two further quarter point cuts taking the Bank rate down to five per cent by the middle of 2008, with the possibility of one further cut to 4.75 per cent subsequently."

The 0.25 per cent cut is already being passed on by HSBC, Halifax and Nationwide to customers, who will no doubt be relieved at the news. If this is the start of a series of rate cuts, the attractiveness of mortgages will grow and the market, despite any lingering effects of the credit crunch, may at least have a fighting chance of reigniting.