British Gas raised its prices midway through last week which is threatening to push up the rate of inflation further and at a faster pace.

But economists here believe that inflation has already peaked or is nearing its peak, therefore in their opinion the Bank of England’s Monetary Policy Committee (MPC) was now in a better position to cut interest rates and thus help stop the creeping slide in the economy.

The other gas company, EDF has already increased its gas and electricity prices. Other suppliers are expected to follow suit. As a result, the utility bills are estimated, on an average to spike by 20 per cent.

Gas and electricity bills are said to make up 3.2 per cent of the consumer price index. So if everything else remained the same, the rise in utility prices is expected to add 0.6 per cent to CPI inflation, pushing it up from 3.8 in June to 4.4 per cent in August. And with previous rises in petrol prices having yet to fully feed through into the index, inflation is actually likely to rise even further than this.

The hope that the MPC in view of the expected peaking of inflation rate would cut interest rates when it meets next if materialised, the slide in the economy is expected to start grinding to a stop which in turn is expected to help avert a slump on the scale of the early 1990s.

Meanwhile, the looming recession has caused half of the UK businesseses to plan job cuts. The pound has fallen significantly in recent months which is likely to encourage export-led growth. But there is a little hope in the business circles that it would on its own help avert recession because the credit crunch and a sharp retrenchment in corporate spending is expected to more than neutralise this gain.

After figures last Friday showed that growth had fallen to 0.2 per cent in the second quarter of this year a “technical recession” of two or more consecutive quarters of falling gross domestic product is now all but guaranteed. A full-blown slump like the early 1990s is said to be not impossible even if the labour market crumbles or interest rates end up rising rather than falling. But even if the bank lowers the interest rate to 3.5 from the current five per cent but waits till the next year to do so, it is expected not to help stop the economic slow down.

In a related development, new findings showed the fallout from the credit crunch will make it difficult for would-be home-owners to obtain mortgages until at least 2010.

Experts said problems have arisen in the mortgage market because lenders are no longer able to raise finance on the money markets to turn into home loans. One report said that a decade ago 10 biggest mortgage lenders used customer deposits to finance more than 70 per cent of their loans. By last year this had fallen to 55 per cent as lenders increasingly turned to the money markets for financing.

Lenders packaged up mortgages and sold them as bonds on the financial markets. By the end of 2007, this market for mortgage-backed securities was £257 billion, compared with the total home loan market for £1.2 trillion, indicating how crucial this form of financing had become.

But while banks are competing for savings, customers’ disposable income is under such pressures that there is unlikely to be a “surge” of savings into banks to support more mortgage lending.

Data published last week by the Bank of England showed that home loan approvals fell by 68 per cent to a record low in the year to June. Approvals fell to 36,000 in June, the lowest since records began in 1993 and down from the 114,000 in June last year before the credit crunch began. This is expected to have further repercussions on already depressed house prices.

Adding to the woes of the economy is the further sharp contraction in the amount of cash held on deposit by companies in June. This is said to be yet another sign that the economic downturn is taking its toll on the corporate sector, suggesting that it won’t be long before companies start to pare back their spending on both investment and employment.

The economy has taken an additional hit from deterioration in the pension funds. Recent financial market developments have pushed corporate pension funds back into deficit, further constraining the resources available for firms to invest. After shrinking significantly over the past year or two, pension fund deficits have recently begun to widen again, for various reasons. The fall in equity prices has reduced the value of pension fund assets.

Rising inflation expectations have increased the expected cost of future pension pay-outs. And while corporate bond yields are still much higher than the levels seen last year, they have more or less reversed the rise seen over the past couple of months.

As a result of these factors, FTSE 100 companies have seen their aggregated pension fund surplus turn to a deficit in the space of just a couple of months. Estimates of the deficit vary, but range between £8 billion and £23 billion.

What’s more, standard measurement methods could be understating the true size of the deficit. The Capital Economics Ltd., a London based research firm said companies are clearly not as well placed to fund a pension black hole as they were a few years ago. Not only is profits growth set to slow sharply, but firms will find it harder to borrow as a result of the credit crunch. Accordingly, plugging pension fund deficits is likely to come directly at the expense of investment.

“Even if the FTSE 100 pension fund deficit is at the lower end of estimates at £8 billion, this is still equivalent to six per cent of the total £140 billion invested by financial and non-financial corporates last year. We think that real business investment will fall by around 0.5 per cent next year, but a bigger drop is looking increasingly possible,” the CEL added.