The Bank of England is the latest central bank to cut interest rates in the wake of the terrorist attacks on America. According to the British central bank, the drop in share prices following the destruction of the World Trade Centre "suggest a weaker outlook for global activity" than had been expected at the start of the month.

The rate cut - at a quarter of a percentage point - is only half the size of Monday's cuts by the US Federal Reserve and the European Central Bank.

However, according to Mr Jim Power, investment director at Friends First, all three are likely to cut interest rates further in the weeks and months ahead.

The Bank of England itself indicated that it may lower borrowing costs further, saying the policy makers will "assess more fully" the impact on economic growth of the attack when they convene on October 3rd and 4th.

According to Mr Power the rate cut, with more to come, is likely to bolster sterling in the currency markets. So far the UK economy is doing better than either Europe or the US and this should support the currency.

"The euro should be trading around 62p against sterling in one month on the back of more attractive interest rates," he said.

The ECB's decision to cut rates on Monday in line with the Federal Reserve was borne out yesterday by the latest euro zone consumer prices. These were unchanged in August, driving inflation down to 2.7 per cent from 2.8 per cent in July.

It was the third consecutive month that the annual inflation rate moved closer to the European Central Bank's self-imposed 2 per cent ceiling.

Analysts said the inflation data backed the ECB's decision to cut rates. Inflation in the UK was 2.6 per cent in August, just above the 2.5 per cent target.

The figures also showed that inflation is falling more dramatically in Ireland than in any other euro zone state.

Irish inflation fell to 3.7 per cent in August, compared to 4 per cent the previous month on an EU-harmonised basis. The State's inflation rate has fallen two percentage points in the past year.

However, the ECB still came in for criticism yesterday about its lack of clarity.

Just hours before the announcement the president, Mr Wim Duisenberg was effectively ruling out a rate cut, saying the central bank would have to wait to observe the impact on European economies.

The confusion was typical of the communication skills of the ECB, Mr Power said.

Nevertheless the dollar continued to weaken against the euro for the third day in four.

The dollar was trading at $0.9251, compared with $0.9185 a day earlier.