The Bank of England is likely to pump extra new money into markets and keep its key interest rate at a record low 0.5 per cent today in a bid to encourage banks to lend more, according to analysts.
The BoE is to make its latest monthly policy decisions following a two-day meeting that began yesterday amid signs Britain's recession-battered economy is on course to recover after its fastest slowdown in half a century.
Economists said they expected the Central Bank to agree to pump out another £25 billion (€28.9 billion) for lenders as part of its so-called quantitative easing scheme.
"There seems absolutely no doubt that the Bank of England's Monetary Policy Committee (MPC) will keep interest rates unchanged at a record low of 0.50 per cent at its July meeting," said Howard Archer, chief Britain economist at the IHS Global Insight consultancy.
"There is a strong possibility that it will (also) expand the bank's quantitative easing programme by a further £25 billion to £150 billion."
The Bank of England launched its QE programme in March, when it decided to pump out £75 billion of newly-created money after slashing interest rates to 0.5 per cent in a twin-pronged attack on the global credit crunch.
In May, the BoE decided to create an additional £50 billion, while Britain's Labour government has authorised the creation of up to £150 billion.
Under QE, the British central bank buys government bonds from commercial banks in the hope that the institutions will lend again to businesses and individuals.
In a bid to kickstart lending amid the credit crunch and worst downturn since the 1930s, central banks worldwide have slashed borrowing costs to all-time lows. The Bank of England has slashed borrowing costs from a rate of 5% last October.
But rate-loosening alone was deemed insufficient policy by the BoE, hence the introduction of QE.
"We do consider there to be a sound case for an expansion of QE... and we expect the MPC to signal a £25 billion increase," said Philip Shaw, an economist at Investec Securities.
Britain's recession is past its worst but talk of economic recovery is premature as unemployment is set to top three million in 2010, business grouping the British Chambers of Commerce said Tuesday.
"The worst phase of the recession is over, but serious downward pressures persist across all sectors and regions," BCC chief economist David Kern said in a study by the organisation assessing the second quarter.
"Most key balances are still in negative territory and remain weak by historical standards. Recovery is now possible but it is not yet secure."
The BCC said it continued to predict unemployment would reach 3.2 million - about 10 per cent of the workforce - by mid-2010.
British manufactured output meanwhile declined by 0.5 per cent in May from April, official data showed on Tuesday. Analysts had expected a rise of 0.2 per cent.
Recent data has, however, pointed to a stabilisation of the housing market after a slump in property prices over the past 18 months.
Britain's recession-battered economy shrank 2.4% in the first three months of the year compared to the final quarter of 2008 - the largest decrease since 1958.
Meanwhile, 12-month inflation is at its lowest level since the end of 2007 because of falling food and energy prices.
Consumer Price Index (CPI) annual inflation, the government's target measure, slowed to 2.2% in May from 2.3% in April.
The Bank of England's key aim is to keep British annual inflation close to a government-set target rate of 2%.