Thursday March 5, 09:25 AM
Britain waits on interest rate cut
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LONDON (AFP) - The Bank (TBHS - news) of England was forecast Thursday to slash British interest rates to yet another record low -- and embark on measures to pump more cash into the recession-hit economy.
Most economists expect the BoE will slash its key interest rate by half a percentage point to just 0.5 percent -- the lowest level since the British central bank was formed in 1694. A decision is due at 1200 GMT.
But with rates close to zero, the BoE is also on the verge of quantitative easing -- a last-ditch effort to increase money supply -- after governor Mervyn King wrote to finance minister Alistair Darling last month to seek permission.
"Today, the question for markets of whether the Bank of England will cut bank rate close to zero, and embark on quantitative easing, will be answered," said Lloyds TSB Corporate Markets economist Trevor Williams.
"The chances are that bank rate will be cut to 0.50 percent. The financial markets have priced it in and no member of the MPC (A050540.KQ - news) (the bank's Monetary Policy Committee) has come out to say that this is unlikely."
The BoE has slashed British borrowing costs since October when they had stood at 5.0 percent.
However, the central bank is now considering adopting quantitative easing as it becomes apparent that lowering interest rates have failed to stimulate the economy sufficiently.
Shortly after the BoE announcement, the European Central Bank will deliver its latest monetary policy decision at 1245 GMT.
The ECB was widely predicted by economists to slash borrowing costs to a record low 1.50 percent in a bid to lift the eurozone out of recession.
The US Federal Reserve and Bank of Japan's main interest rates are essentially zero.
At the MPC's February meeting, policymakers argued that the time was right to use "alternative policy instruments" -- notably quantitative easing -- because more rate cuts "could not inject sufficient stimulus" in the economy.
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