Rates are set to reach their lowest level in the Bank's 315-year history
The Bank of England is expected to cut interest rates to the lowest level in its 315-year history when it makes its monthly decision later.
With rates currently at 2%, the Bank's Monetary Policy Committee is tipped to announce a reduction of between 0.5 and one percentage point.
This would be the first time since the Bank was founded in 1694 that rates have fallen below 2%.
It comes as the Treasury denied reports it was planning to inject more money.
A number of newspapers said the step was being considered once interest rates fell close to zero as a tactic to help both stimulate the economy and avoid deflation.
Treasury sources said that while the move had not been ruled out, it was not currently on the agenda.
'Balancing act'
While a rate cut is widely expected, there is debate as to how far the Bank will actually go.
Item believes a 50-basis-point cut in the interest rate would be appropriate
Hetal Mehta, economic advisor to the Ernst & Young Item Club
Hetal Mehta, economic adviser to the Ernst & Young Item Club, said the Bank was facing "a balancing act".
"Six months ago, it was juggling slowing economic growth with soaring inflation," she said.
"But now the Bank has to tread a fine line between avoiding deflation and a further weakening of sterling, whilst doing all it can to soften the impact of the recession."
"Item believes a 50-basis-point cut in the interest rate would be appropriate. However, with survey data continuing to worsen, a larger cut of 100 basis points, taking the interest rate to 1%, is a distinct possibility."
It is not clear how much of any cut would be passed on to mortgage customers.
HSBC, Lloyds TSB/Cheltenham and Gloucester and Bristol & West are passing on the last one-percentage-point cut in full for those customers with variable rate mortgages.
But the UK's biggest lender, HBOS, is passing on only 0.25 of a percentage point.
Jackie Branson's savings have been hit hard by the cuts
Even those customers with tracker mortgages - which follow changes in Bank rate - may not see the benefit, as many mortgage providers have "collars" below which their tracker rates will not fall.
Meanwhile, any rate cut will mean that Britain's savers will see their interest earnings fall once more.
Quantitative easing
In an interview with the Financial Times on Wednesday, Chancellor Alistair Darling indicated the Bank would have to work "hand in hand" with the Treasury if it wanted to carry out "quantitative easing" - or printing money.
A central bank printing money to inject into the markets is a strategy known as quantitative easing, which was pioneered by Japan as a way of battling its deflationary problems in the 1990s.
Deflation - where prices regularly fall rather than rise - becomes a greater risk as interest rates head towards zero.
It can be a problem because if people believe that prices are going to fall, they have incentives to postpone buying anything they can, which means there is even less activity in the economy.作者: bill 时间: 2009-1-8 12:48