Bank to cut rates by 50 basis points

By Jonathan Cable

LONDON (Reuters) - The Bank of England will slash interest rates to a record low when it meets on Thursday as evidence piles up that the economy has slumped into a deep recession, a Reuters poll showed.

The central bank is seen cutting another 50 basis points from base rates to 1.5 percent -- taking them to a level not seen since the Bank of England was created in 1694 -- just a month after it slashed them 100 basis points.

A Reuters poll of 61 economists, taken December 29-January 5, showed the Bank Rate falling to 1.0 percent by March and then again to 0.5 percent by June. That is deeper than the trough of 1.0 percent predicted in a poll published three weeks ago.

"We are still looking for a 50 basis point reduction to 1.5 percent this month. It is possible that the MPC opts for a more aggressive 75 basis point or even 100 basis point move," said Philip Shaw, chief economist at Investec.

Fifty-nine of 61 economists said the bank would cut rates this month, with 41 of them plumping for a 50 basis point cut. Four said the bank would cut 75 basis points and another 14 expect a full percentage point chop or more.

Two forecast no change in rates on Thursday -- a big difference from what financial markets are expecting, almost completely pricing in a 75 basis point cut from the Monetary Policy Committee.

Economists surveyed also said there was now even odds chance that the BoE will follow the U.S. Federal Reserve's move late last year in cutting rates to close to zero. Five forecasters predicted Bank Rate at zero in the next few months.

Many cited the historic plunge in sterling over the past several months -- particularly against the euro in recent weeks to near parity -- as a reason why the MPC might opt for a smaller interest rate cut this time.