What the Bank of England has to weigh up next week

By Fiona Shaikh

LONDON (Reuters) - The Bank of England is expected to follow up December's 100 basis point rate cut with at least another 50 basis point reduction next week amid growing signs the economic downturn is gathering pace.

Money markets are pricing in an 80 percent chance the Monetary Policy Committee will slice borrowing costs to 1.25 percent from the current 2 percent, taking the Bank rate to its lowest since the Bank was founded in 1694.

Some policymakers have said the bank may eventually have to cut interest rates to zero and resort to quantitative easing -- essentially printing more money to buoy the economy. Below are a range of points likely to feature in the Monetary Policy Committee's discussions.

INFLATION

Consumer price inflation has continued to ease, falling to 4.1 percent in November -- still double the Bank's 2 percent target. In a letter to finance minister Alistair Darling, explaining the overshoot, Bank Governor Mervyn King said it was likely that inflation would fall more than one percentage point below the target this year.

GROWTH

A final reading of gross domestic product published before Christmas, showed the economy shrank by 0.6 percent in the third quarter of this year, worse than initially estimated.

And things are likely to get much worse in 2009, with surveys pointing to a marked contraction in the manufacturing and services sectors. Consumption, long the mainstay of economic growth, is also likely to suffer amid rising unemployment and tight credit conditions.