Bank likely to cut interest rates

8:57am Thursday 4th December 2008

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Expectations are mounting for a full 1% cut in interest rates when the Bank of England delivers its vote on the cost of borrowing.

The Bank's rate-setters could slash rates again, from 3% to an all-time record low of 2%, as the economy slides into recession, economists predicted.

The Monetary Policy Committee (MPC) will announce its decision at noon after two days of deliberations amid worsening economic news.

The Bank's rate-setters are predicted to deliver at least another 0.5% cut, but experts said the case had been reinforced for a 1% move despite last week's Pre-Budget Report stimulus package.

Figures on the beleaguered services industry showed activity in the sector shrank at its fastest pace for 12 years in November.

Employment, new orders and current activity were all at record lows, according to the latest survey report from the Chartered Institute of Purchasing and Supply (CIPS).

Manufacturing and construction data earlier this week also showed record lows for activity last month as the economic crisis deepens.

Philip Shaw, economist at Investec Securities, said: "We had previously judged that a 0.5% easing, together with the substantial tax cuts in last week's Pre-Budget Report, would bring the MPC's inflation forecasts into line with the 2% target in the medium-term. But this week's economic news has been very poor."

He added there was even a "real chance" of a repeat of last month's 1.5% cut, although he pointed out this would leave the Bank with little ammunition to help the economy further.

The MPC surprised markets last month by slashing the base rate by 1.5% to 3%.