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Interest rate decisions by the Bank of England's monetary policy committee (MPC) are occasionally predictable, uncontroversial affairs, but since the credit crunch struck economists have agreed that 5.75 per cent was as high as interest rates were likely to go. As the economy sees hints of a slowdown and the housing market clear signs of one, speculation has grown over when rates would fall.

Two other factors have added to this. Firstly, inflation, which climbed to over three per cent in March and thus obliged Bank of England governor Mervyn King to write a letter to then chancellor Gordon Brown explaining what the MPC was planning to do about it and then  dropped below two per cent for three months running as summer turned to autumn.

Secondly, longer-term projections for inflation contained in the Bank's November inflation report indicated that, while the Consumer Price Index might creep up to 2.3 per cent next year, it would fall back to two per cent by 2009 even with a couple of interest rate cuts. Nationwide responded by tipping that February would see the first of three reductions to the base rate in 2008.

Yet the state of the housing market has put increasing pressure on the MPC to cut rates in December. The last week saw four monthly house price surveys published. House price websites Rightmove and Hometrack both recorded falls, while Nationwide's figures this week showed the biggest monthly drop in house prices, 0.8 per cent, in 12 years.  Only the Land Registry, recording a 0.1 per cent increase in prices across England and Wales in October, bucked this trend, although even these figures revealed that London, for so long the biggest beast in the house price inflation jungle, had seen a 0.6 per cent fall, the largest of any region.

With these figures followed by Bank of England figures showing mortgage lending down from 100,000 new loans in September to 88,000 in October, it is perhaps small wonder some have started calling for a cut as soon as December. The Council of Mortgage Lenders (CML) reacted to the mortgage figures positively, with head of member and external relations Sue Anderson saying   that the fall was less than some pessimists expected and proved the market was more "robust" than they thought.

However, the CML, in its monthly market commentary yesterday, said that while the November inflation report had pointed to two rate cuts in 2008, this might not be enough to help the economy and housing market, concluding that "earlier and more decisive action may be needed".

Yet the MPC faces a dilemma. Other figures out today, by the Confederation of British Industry, show that in the last three months the balance of retailers putting prices up over those who did not was 42 per cent, compared with 16 per cent in August. This, added to the fears about food and fuel inflation pressures mentioned in a recent speech in Hull by MPC member Kate Lomax, could dissuade the committee from changing the status quo. Several economists certainly thought so, with James Knightley at ING and Howard Archer of Global insight both suggesting that a December cut would now be off the agenda.

Thus the MPC will be faced with a potentially awkward choice. Does it risk a cut when some indicators suggest inflationary pressures may be higher than expected? Or does it act now before the housing market slides any further amid fears that the UK might suffer a wider economic slowdown on the back of the credit crunch?

This week, Mervyn King told the House of Commons Treasury select committee: "It's the sheer uncertainty out there which is driving the risk that there might be a further substantial credit squeeze." That uncertainty could make next week's deliberations agonising and the final decision a close one.