Recession could turn out worse, says Bank

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Deputy Governor Charles Bean said: "The risks are heavily weighted to the downside, with roughly a three-in-four chance of growth turning out weaker than in the central case."

The Bank last week said its central case was for the UK economy to shrink by 4% between mid-2008 and the middle of this year — but warned it could contract by more than 6%.

Bean said that "an economic winter of unusual severity arrived" with the collapse of Lehman Brothers in September, adding that the global economy "is now in the throes of a sharp and synchronised downturn".

However, he continued, "there are grounds for thinking that conditions may start to improve later in the year" as lower interest rates, tax cuts and increased public spending filter through to the economy.

Since October, the Bank has cut rates from 5% to a record low of 1%. But in a sign that it is now switching its attention towards the strategy of quantitative easing — otherwise know as printing money — to boost growth, Bean said: "It must not be forgotten that even if Bank Rate remains where it is, the recent cuts will continue to provide a building boost to demand through this year and beyond.

"We don't have to keep on cutting rates in order to provide a stimulus."