LONDON (Reuters) - The Bank of England is very likely to cut interest rates to another 300-year low in February to deaden the blow from what is already the fastest pace of economic decline in nearly three decades.

Sixty-one of 68 economists polled by Reuters January 28-29 said the Monetary Policy Committee would cut rates by a half percentage point to 1.0 percent, two said it would cut them by double that amount, two by just 25 basis points, and three said it would leave rates unchanged.

The consensus is roughly in line with expectations in financial markets based on interest rate futures contracts.

The results contrast sharply with a separate Reuters poll that showed there was virtually no chance of a rate cut from the European Central Bank when it meets on the same day -- even though rates in the euro zone are higher.

Economists' conviction the Bank will cut by a half point was high, at a median 60 percent, and there is a significant 40 percent chance that policymakers follow the U.S. Federal Reserve's lead and eventually cut interest rates nearly to zero.

There is now plenty of speculation that the Bank will soon begin printing money by purchasing assets outright, called quantitative easing, given that earlier this month the Treasury began clearing the path for them to do so.

"With the economic news looking grimmer by the week, the Bank needs to be able to deploy all the weapons at its disposal," noted John Hawksworth, head of macroeconomics at PricewaterhouseCoopers.

There is little disagreement that nearly all the economic data in recent months have been terrible. The economy already contracted 1.5 percent in the final quarter of 2008, the fastest pace since 1980, and marking the first official recession in Britain since the early 1990s.

Private retail sales data have been weak and well-known retail names like Woolworths have disappeared off the high street. House price falls have intensified -- the Nationwide reported the biggest annual fall since 1991 on Thursday -- and mortgage lending has slowed to just a trickle.

TOO MUCH GLOOM?

Inflation has not yet tumbled as quickly as it has in the euro area or in the United States. It fell less than expected to 3.1 percent last month, and is still more than one percentage point above the MPC's 2.0 percent target.

Economists are convinced, however, that it will fall sharply this year. The latest Reuters poll of long-term economic forecasts showed inflation falling an average of 0.4 percent on an annual basis in the third quarter.

"The UK economy is expected to remain depressed for several quarters to come," said Stephen Lewis, chief economist at Monument Securities. "This will impart a downward bias to the MPC's inflation forecasts."

That, in turn, emboldens the view that rates, already at their lowest since the Bank of England was founded in 1694, still have quite a bit to fall.

Mid-range forecasts in the poll show rates at 1.0 percent at the end of the first quarter -- the same as in the previous poll -- and 0.5 percent at the end of the second quarter, compared with 0.75 percent forecast in the January 21 poll.

Rate cut expectations have helped send the pound crashing by about a third against the dollar since the latest leg of the global financial crisis began last summer. The pound has plummeted by about 20 percent against the euro.

Policymakers have surely welcomed this move even as most people have not. The fall in the pound has made exports a lot cheaper and shoppers from the continent have been hitting London stores to snap up bargains.

Indeed, not all economists are as convinced as the International Monetary Fund and others that the UK is in dire straits relative to other developed economies.

Some say the MPC might not be forced to slash rates all the way down to zero or even begin purchasing assets outright, even though many think the Committee was slow to recognise the severity of the downturn.

"There's not much good that's going on in the economy. But there's not much good that's going on in any economy right now," said Robert Barrie, economist at Credit Suisse, who forecasts rates on hold at 1.0 percent after a February cut.

(Polling by Bangalore Polling Unit; Editing by Ruth Pitchford)

Source:  Reuters

Dominic Farrell