ClickAJob News

The Bank of England is set to announce its interest rate decision for February at midday today with a rate cut widely expected.

The Bank's monetary policy committee has cut rates from five per cent in October to the current record low level of 1.5 per cent – but with the UK economy deteriorating and inflation seemingly turning to deflation, a further cut is expected.

Vicky Redwood at Capital Economics said: "After cutting interest rates by 150 basis points (bps) in November and 100bps in December, the committee cut by 'just' 50bps in January.

"We doubt that any of this rules out further rate cuts. The economic news since the last meeting has been pretty dreadful.

"We therefore expect another 50bps cut at February’s meeting. It is certainly possible that the committee cuts by even more, if that is what their latest inflation forecasts suggest is required."

However, she added the MPC will be at pains not to shock the markets with a cut much greater.

Henk Potts, equity strategist at Barclays Stockbrokers, is also predicting a half point cut.

"The UK economy contracted by 1.5 per cent in Q4 2008 - its weakest performance since 1980. The threat of inflation has now turned to the risk of deflation due to the sharp drop in commodity prices, the temporary cut in VAT and weakness in consumer demand."

He added: "We now expect the Bank of England to cut rates close to zero by mid-year."

The British Chambers of Commerce (BCC), is also predicting an eventual cut down to zero per cent.

David Kern, BCC chief economist, said: "In the face of a worsening recession, we urge the MPC to cut interest rates by at least half a point on today.

"Since deflation is a distinct risk later this year, interest rates may have to be cut temporarily to almost zero."

He also called on the Bank to start focusing on increasing the money supply through a shift towards forceful quantitative and credit easing.

Ms Redwood added: "Our view remains that the MPC will get interest rates down as far as is possible without causing technical problems before embarking on quantitative easing."

However, the Building Societies Association (BSA), is demanding the Bank of England holds off from cutting interest rates – for the sake of savers and borrowers.