The Bank of England is poised to take further action to boost the economy through trimming interest rates further and also, highly likely, through quantitative easing, said Charles Bean, deputy governor of the central bank, to the National Farmers Union Conference on Monday.

He indicated that quantitative easing is likely to prove useful now that interest rates cannot go much lower. This is likely to include at least one more interest rate cut, as during his speech Bean noted that "Bank Rate is nearing its floor" thereby implying that it is not there yet.

Bean painted a dismal picture of the British economy in the first half of this year -- noting that sharp contraction is "already baked in the cake" -- but he expressed hope that matters may start to improve in the latter months of the year, helped by the substantial monetary and fiscal stimulus enacted since October as well as the measures that have been launched to boost the supply of credit to businesses and households.

The central bank's central projection is for economic activity to gradually recover in 2010, but the risks to this outlook are seen heavily weighted to the downside, said Howard Archer, chief UK and European economist of IHS Global Insight.

The Bank of England has just started operating the Asset Purchase Facility, under which it will purchase up to 50 billion pounds (about US$71 billion) of commercial paper, corporate bonds and similar securities.

This should push down yields on a wider range of assets and increase the supply of broad money in the economy, thereby helping to boost nominal spending, said Howard.

But the economist predicted that the interest rate would come down to a low of 0.25 percent in the second quarter and then remain there for the rest of the year. Indeed, it is very possible that interest rates could come all the way down to zero.

In order to stimulate the British economy, the central bank has cut interest rates sharply since last October. On February 5, the bank announced an interest rate cut of 50 basic points to only one percent, the lowest one since its establishment in 1694.

(Xinhua News Agency February 17, 2009)