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Bank of England expected to cut interest rates to 1.5% or less

The Bank of England's monetary policy committee is expected to chop at least half a percentage point off interest rates today, which would take borrowing costs to their lowest in more than 300 years.Having voted unanimously for three consecutive cuts in October, November and December, which took rates from 5% to 2%, the MPC is widely expected to lower them again at the end of its monthly meeting at noon today. One-in-two economists expect a half-point cut while nearly one-in-three predict a full-point reduction, according to a Market News International poll of 40 analysts conducted this week.Any reduction would take rates to the lowest since the Bank was founded in 1694 and move Threadneedle Street closer to the point where radical action such as quantitative easing - pumping money into the economy in a bid to get people and businesses spending again - becomes the only option to prevent deflation.The Treasury denied reports today that it was about to inject more money into the economy, although it did not rule out such a move in the future.The Bank's deputy governor Sir John Gieve has admitted that the central bank previously severely underestimated the severity of the economic slump, and the bad news keeps coming.Unemployment has shot up, the economic slump has spread from manufacturing and construction to services, and the number of business failures on the high street is growing by the day, including well-known names like Woolworths. Car sales have dived and house prices have fallen 20% from their peak.The chancellor, Alistair Darling, admitted yesterday that the UK recession is deeper than the government had expected.If interest rates are cut further, lenders may soon have to cope with zero interest rates. If the Bank reduces rates by a full percentage point to just 1% today, people with mortgages that track a point below base rate will find themselves paying no interest.The minutes of last month's meeting revealed that while the MPC voted unanimously for a reduction of a full percentage point, it considered the case for a larger reduction.The committee may struggle to preserve its unity this time as some members are known to be very concerned about the economic outlook and may push for a bigger reduction than the rest.David Blanchflower has repeatedly highlighted the bleak outlook for the labour market. In a Royal Economic Society paper, the labour market expert said he expected unemployment to keep going up this year and into 2010, probably rising over 3 million."Where is the light at the end of the tunnel? I can't see any," he said.Interest ratesBank of EnglandInterest ratesguardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds