Bank may deliver biggest cut in 15 years

By Sumeet Desai

LONDON (Reuters) - The Bank of England could deliver its biggest interest rate cut in 15 years this week as it tries to prevent a prolonged and painful recession.

Mounting evidence that the economy is shrinking sharply has led markets to price in a rate cut of three-quarter of a percentage point, which would be the biggest cut since 1993 and in the 11 years since the Monetary Policy Committee was set up.

Ten of 62 analysts polled by Reuters on Tuesday predicted borrowing costs, currently at 4.5 percent, could fall by a full percentage point. That would also be the biggest rate cut since 1993 as the MPC rarely moves rates by more than a quarter point.

The financial crisis has completely changed old habits with policymakers saying they have not seen anything this bad before. Last month, the Bank, along with other major central banks, delivered an emergency half point rate cut.

The European Central Bank is also expected to cut interest rates by half a percentage point on Thursday, according to analysts. Some investors are betting on an ever bigger cut.

"The MPC needs to make aggressive cuts in the Bank Rate in the months ahead: our assumption is a cumulative 200 basis points by February," said Geoffrey Dicks, chief UK economist at RBS. "If that is correct, the November decision is mainly tactical."

BERNANKE MOMENT

In a blunt speech last month, Bank Governor Mervyn King said the economy was likely entering recession, comments widely interpreted as opening the doors to much lower rates, as Federal Reserve chairman Ben Bernanke did in January.