With the base rate at an all-time low of 1.5 per cent, will the Bank of England take it even lower, to one per cent, this week?
There has been a desperate series of cuts, which have taken the rate down from 5 per cent last October to its January level, but still the economy has continued to dive, and the property market has remained suppressed.
The Bank?s remit is to keep inflation as close to 2 per cent as it can. Inflation is now at 3.1 per cent (down from 5.2 in October), and the fears are now that it will become negative in coming months, to take the country into deflation.
Can the Bank prevent this, and stop the recession becoming a depression?
One consideration might be to print more money, called quantitative easing. The risk of this is inflation that is too high ? it happened in the extreme in pre-war Germany and is doing so current day Zimbabwe ? but a greater risk may be to prolong the recession.
Bank of England Governor Mervyn King and Chancellor Alistair Darling have discussed an ?Asset Purchase Facility?, a ?50 billion scheme to unfreeze credit markets to enable banks to lend more easily. This is not standard quantitative easing as it is not a fresh supply of money from the Bank, but would enable such measures to follow if necessary.
With little further room to manoeuvre on the interest rate, there can be little doubt that quantitative easing would be the next step if the economy continues to down slippery slope financially.
