Thanks Dolly. Oil prices fell again yesterday after it became clear there would be little disruption to production in the Gulf of Mexico from Hurricane Dolly.

Combined with figures showing higher than expected stocks of petrol in the US, it was enough to knock another $4.26 off the price of North Sea Brent crude. At $125.29 a barrel, the price is now down about 14 per cent on its record set less than two weeks ago.

Could this be the tipping point for oil? There are good reasons to think it might.

Whether or not you believe the huge run-up in the price over the past year was driven largely by speculation - and a US government report yesterday argued otherwise - the truth is that oil had reached levels that looked pretty unsustainable, even in the context of the burgeoning demand from energy-hungry emerging markets.

With developed Western economies on the ropes, in part because of the oil price itself, it seemed likely that growth in global demand would eventually slow enough to take the pressure off the price.

The evidence suggests that this is exactly what is now happening. Americans are driving less and buying more fuel-efficient cars. Demand growth is slowing in Europe and should even start to moderate in China and India, where government-controlled petrol prices have been raised.

Analysts at Lehman Brothers now forecast average oil prices of $110 in the last quarter of this year, falling to $90 in the first quarter of next.

If this proves correct, it will deliver a big shot in the arm for the economy. The oil price has dealt a double blow - knocking back growth by squeezing family and business budgets and at the same time fuelling inflation, so preventing the Bank of England from offsetting the slowdown by cutting interest rates.

The dilemma for the Bank was highlighted yesterday when it revealed the first three-way split on its rate-setting Monetary Policy Committee (MPC) for more than two years.

One member, Tim Besley, voted for a rate rise this month, fearing that the surge in inflation would trigger wage increases and so become entrenched in the economy. There is little sign of that so far. Official figures yesterday showed the annual pace of pay growth slowed in May to only 3.8 per cent.

While Professor Besley favoured a warning shot on rates to bolster the MPC's credibility, a majority of members voted to hold. If the oil price continues to fall, even hardliners such as the professor may relax a bit.

It will not stop inflation scaling new heights in the next couple of months. On present trends it will reach 4.7 per cent in October.

Yet even if oil prices merely stay where they are, it would then tumble to 3 per cent by next June, and to 1.7 per cent - below the Bank's 2 per cent target - by October next year, according to calculations by Capital Economics.

Were the cost of crude to fall to $100, inflation would be back below 4 per cent by Christmas, below 3 per cent by April and below target by next autumn.

These calculations assume that utility companies still push through big price increases, of perhaps 20 per cent, expected later this year.

Oil markets are notoriously hard to forecast but, if prices have indeed now peaked, there is a good chance that the worst of the present inflation shock may have passed by the end of the summer. That could open the way for the Bank to cut rates and prevent the economy from hitting the buffers.

Let's just hope Dolly and her sisters behave for the rest of the hurricane season.

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