The popular forecast is for the Bank of England to reduce its base rate to 0.5 per cent this week when the Monetary Policy Committee meets to set the rate for March.
That will almost certainly be a prelude to quantitative easing (printing more money) to pump extra cash into the economy in an effort to get the financial wheels of the nation turning once again.
The Government will agree to Bank Governor Mervyn King?s request to create up to ?150 billion in new money in the next few months in order to buy up everything from corporate bonds through to government debt.
It surely represents the last desperate measures of a government and bank trying to save the country from sliding towards deflation.
Whether the Bank actually does reduce its base rate this week depends on whether it thinks that any further reduction will have any effect. Some mortgage lenders have not passed on recent interest rate cuts, and many of the lenders? tracker rates are collared anyway, so can go no lower.
Therefore, the most significant act of the week may not be the rate itself, but the notice of intention to pump new cash into markets, to buy commercial paper and corporate bonds, as well as gilts. Around ?5 billion to ?10 billion a month could be spent on these.
Michael Saunders, chief UK economist of Citigroup, commented: ?(Quantitative easing) is a powerful form of stimulus.?
He added: ?Of course, if and when the recession eventually ends, the MPC will face the major challenge of judging when to scale back QE.?
