Brown says inflation low so interest rates can fall

LONDON (Reuters) - Interest rates can fall because inflation is low, Prime Minister Gordon Brown said on Tuesday, two days before a Bank of England interest rate decision and despite forecasts for higher inflation this year.

The government does not have the power to change interest rates, as Brown gave up that responsibility to the Bank of England in 1997 when he was Chancellor.

However, pressure is growing on policymakers to shore up the economy in the wake of the credit crunch.

"Because we've got low inflation we can cut interest rates," Brown said in an interview with the BBC.

"That's why people are forecasting that British growth will be higher than growth in other countries who are equally affected by what is happening."

The staunchly independent Bank of England, which is expected to cut rates by 25 basis points to 5 percent on Thursday, declined to comment on Brown's surprisingly blunt words.

But analysts said the comments would probably not be well received at the central bank.

The BoE expects inflation to spike to around 3 percent this year and Governor Mervyn King has said policymakers face their toughest challenge since 1997 as they try to balance rising prices against prospects of weaker economic growth.

"It's getting pretty close to the line," said Vicky Redwood, an economist at Capital Economics. "He (Brown) could say he is referring to the two cuts we have already seen and legitimately say we are in a loosening phase in monetary policy."

(Reporting by Matt Falloon; Editing by Gerrard Raven)