Bank makes request to print money

The base interest rate is expected to hit an unprecedented low of 0.5% this week amid talks of boosting the flagging economy with newly-created bank notes.

Banks remain anxious about lending as experts predict rates will fall for their sixth month in a row on Thursday.

This has led Bank of England governor Mervyn King to formally request permission from Alistair Darling to begin so-called "quantitative easing" - effectively printing money.

The Bank's Monetary Policy Committee's (MPC) will then go ahead with the strategy as soon as approval is given.

The Bank will create money which it will use to buy Government and corporate bonds through its Asset Purchase Facility (APF).

Around £820 million in corporate bonds - like company IOUs - have been bought up by the APF in a tactic to ease the credit market. This has been funded by £50 billion from the Treasury.

Vicky Redwood, of Capital Economics, said: "The interest rate decision is something of a side-show this month, given that it looks set to be the first time in the MPC's history that it takes a vote on more unconventional policy measures."

The move comes as the Bank forecasts a year-on-year fall in output of almost 4%, with the possibility of an even heavier decline on the cards.

Record levels of public borrowing, along with a rise in the number of repossessions and increasing job losses have offered few signs of imminent recovery in a bad month for financial data.

Mortgage lending in January slumped to less than half the level of a year ago - giving no respite to the ailing housing market - while repossession soared by more than 50% during 2008 to hit a 12-year high of 40,000.

And manufacturers endured their biggest quarterly slump in output for 35 years in the three months to December, figures showed.

Official unemployment currently stands at just below two million after hitting a ten-year high between October and December.