Bank considers interest rates cut

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Such a move from the Bank's Monetary Policy Committee (MPC) would take rates down to 2% - the lowest level on record. The outcome of the MPC's two-day meeting is due to be announced at noon on Thursday.

The Bank's rate-setters are predicted to deliver at least another 0.5% cut, as they seek to avoid a deep and prolonged recession.

But more job losses and painful economic data in the past month have strengthened the case for a whole percentage point cut, according to analysts.

The TUC's head of economics Adam Lent said: "With unemployment rising rapidly and inflation falling, the time for incremental cuts is over."

The MPC surprised markets last month by slashing the base rate by 1.5% to 3%.

And the MPC's tone has turned markedly dovish in recent weeks, with minutes for November's meeting showing that the committee even considered slashing rates by 2%.

It decided to hold off from this measure while it waited to see what fiscal stimulus the Chancellor would unveil in the Pre-Budget Report.

The MPC will have to consider if the 2.5% cut in VAT and other measures outlined by Alistair Darling will be enough to encourage consumers to shop and boost the flagging economy. However, Bank boss Mervyn King admitted last week that the cut may not start to have any significant impact on spending until later next year.

The British Retail Consortium said a 1% cut was needed as consumers and businesses were still facing "extremely tough conditions", with high street firms resorting to further cut-price sales to lure in shoppers.