Rates set to be cut again

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Economists are predicting a reduction of at least 0.5% to 4%, but many believe the worsening economic outlook could see rates slashed by a full percentage point - the biggest ever reduction since the Bank's Monetary Policy Committee (MPC) was formed 11 years ago.

The record-breaking decrease would take rates down to 3.5%, which would be the lowest level for five years.

However, the move may not offer struggling homeowners or business borrowers much relief as lenders are thought to be unlikely to pass on the full cut.

More than half of mortgage lenders failed to pass on the last reduction in the Bank base rate, by 0.5% to 4.5% last month, as they faced stubbornly high interbank lending costs.

And of the 44% of lenders that did announce rate cuts since the Bank's move, a number of them did not made the full 0.5% decrease.

Key money market rates have begun to come down in recent days as Government and Bank of England efforts to shore-up confidence among banks has seen them become willing to lend to each other.

But the three-month interbank lending rate, used by banks to price mortgages, remained at 5.84% on Friday despite the falls and is expected to prevent many banks from trimming rates for borrowers.

The Bank begins its two-day meeting on Wednesday to discuss the cost of borrowing amid an increasingly gloomy economic picture.

Official figures last month revealed that the UK economy took its first step towards recession, with a far worse-than-expected GDP decline of 0.5% in the third quarter.