After five rate cuts in as many months, the Bank of England's rate-setting committee looks set to use the big guns in its efforts to keep inflation near the 2 per cent target. The minutes of the February meeting of the Monetary Policy Committee (MPC) and comments by many of the Bank's leading figures since then indicate that the MPC is set to “print money” in an extra effort to boost the money supply.

Many economists expect the MPC to announce on Thursday that it has started a programme of “quantitative easing”, alongside its rate decision. While discussions over how much money to inject into the economy will surely take up much time at the MPC's two-day meeting, the nine-strong committee will also have to peruse some dismal data when considering whether to cut interest rates further.

Growth and activity: Plummeting

The Bank revised down its already dire forecasts for the economy last month, indicating that GDP could fall by 4 per cent in the summer, which would be the biggest peacetime slump in output since the early 1930s. The Bank's quarterly Inflation Report, published a fortnight ago, also emphasised this risk and a week later, Charlie Bean, the Bank's deputy governor, said that there was a three in four chance that GDP could fall more sharply than the Bank's central forecast.

Adding to the gloom, official figures last week showed that the country had plunged into recession more quickly than initially thought, and the underlying figures for the fourth quarter revealed that factory output slid by the biggest margin since 1974.

There is little sign of any imminent improvement: a key survey showed that activity at Britain's factories slumped to near-record lows last month. The normally more resilient services sector also looks set to deteriorate further. A survey from the CBI showed that activity in the sector had collapsed in the three months to February, forcing businesses to slash jobs at the fastest rate in a decade.

Alongside this, household consumption dropped by 0.7 per cent in the final quarter of last year, the biggest decline since the early 1990s, figures show. Since then, another £5,000 has been wiped off the value of an average home as prices continue to fall.

There seems to be little sign of an upswing in the housing market. Figures yesterday showed that mortgage lending remained close to record lows in January, with only 31,000 loans approved for new house purchases, down 55 per cent compared with January last year. But there are fears that any further base rate cuts could exacerbate this situation as banks struggle to attract deposits, making them even less likely to lend. Paltry savings rates coupled with more demands on consumers' pockets prompted the largest monthly withdrawal from bank accounts in 12 years in January, figures from the British Bankers' Association showed.

Costs and prices: Retreating sharply

Consumer prices continued to fall in January, with CPI inflation dropping to 3 per cent from 3.1 per cent and RPI, which includes housing costs, dipping to 0.1 per cent. The Bank of England's forecast shows that the country will be on the verge of deflation for three years as CPI inflation remains well below the 2 per cent target. Factory-gate inflation eased to 3.5 per cent in January as manufacturers passed on falling input costs. These falls were more muted than some economists had expected as the weaker pound boosted the cost of imported goods. However, the impact of the weaker pound has been modest.

Global economy: Nosediving

America's economy slumped at the fastest rate in 25 years in the final three months of last year and economists forecast little immediate improvement. There is little sign of recovery in the eurozone, which is also beset with political wrangling as emerging economies demand more help to weather the economic storm.

Rates verdict:

The MPC might cut by another half-point, but this is likely to be coupled with the unprecedented step of “printing money”.

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