Cash-strapped homeowners can look forward to two further cuts in interest rates next year, according to City economists who have examined the Bank of England's quarterly inflation report.

In the report, the Bank forecasts that the economy will slow in 2008 as the impact of five rate rises in 15 month, the current strength of the pound and the recent uncertainty in financial markets all take their toll. The Bank cut its 2008 economic growth forecasts to around 2.2%, following a similar downgrade by the Treasury.

The Bank of England Govenor, Mervyn King, also said the economy would overcome the blow to confidence from the woes of Northern Rock with inflation expected to return to target.

What will happen with interest rates?

A big downturn would enable the base rate to be cut to 5%, bringing much needed relief to millions of borrowers who have seen rates soar from 4.5% to 5.75% since summer last year.

Many homeowners have faced crippling jumps in their monthly mortgage bills after cheap fixed-rate deals come to an end and they were forced to remortgage to a more expensive deal.

Although an interest rate cut would provide borrowers with a much needed boost before Christmas - and most industry pundits agree that the only way from interest rates now is down - the first of the cuts is not expected until the new year, possible February.

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