Bank cuts interest rates to record low

By Sumeet Desai and Fiona Shaikh

LONDON (Reuters) - The Bank of England cut interest rates by half a percentage point on Thursday to a record low of 1.5 percent, and economists expect another cut in February to try to prevent Britain from falling into a deep slump.

Interest rates have now fallen by 3.5 percentage points since October as policymakers caught on the hop by the severity of the downturn pull out all the stops to revive an economy facing its first recession since 1992.

In a statement accompanying its decision, the Bank said output was likely to keep falling sharply in the first half of the year, although recent tax and interest rate cuts combined with the sharp fall in sterling would give the economy a boost.

Rates in Britain never fell below 2 percent even during the Great Depression of the 1930s, underlining the scale of the current crisis hurting economies all around the world. In the United States, rates now range between 0 and 0.25 percent.

Economists said the BoE would cut again next month and interest rates could even fall below 1 percent, perhaps alongside a signal they would stay very low for a very long time. Even boosting the money supply has not been ruled out.

"They are still in cutting mode but have taken their foot off the gas this month," said Alan Clarke, UK economist at BNP Paribas.

In a Reuters poll conducted after the rate cut 48 out of 58 economists forecast that the Bank will cut rates again next month, with the overwhelming majority eying another half point move.

Their average forecasts that British rates will fall to 1 percent by the end of March and 0.5 percent by June were unchanged compared to the last Reuters poll on January 5.