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Fall in oil price could let Bank relax

The reaction lends weight to those who argue that the 20pc fall in the crude price over the past month will not be reversed in the short term and that the big question now is: how low can it go?

Quite a bit lower seems to be the answer if, like Alan Greenspan, the former Chairman of the US Federal Reserve, you believe that the spike in the price was driven partly by speculative investors who are now cashing in their gains.

The price have also been hit by the rise in the dollar, which continued yesterday as investors digested the gloomy outlook for the eurozone economies.

The fall in the oil price is hugely important for central banks.

In its quarterly Inflation Report tomorrow, the Bank is expected to make clear that inflationary pressures leave it no scope to cut interest rates in the short term.

But if the oil price keeps falling, the Bank could soon start to relax.