The Bank of England is widely expected to cut interest rates this week amid growing signs of a downturn in the UK economy.

Experts believe the Monetary Policy Committee (MPC) is likely to shave a further 0.25% off the official cost of borrowing, leaving the Bank base rate at 5.25%.

Recent figures indicate manufacturers are suffering due to the global economic slowdown, while house price surveys now report property price falls on a monthly basis.

A recent Chartered Institute of Purchasing and Supply survey shows the manufacturing sector is facing the first fall in new orders since July 2005, with activity at its lowest level for two-and-a-half years.

Retail sales also grew at their slowest rate for more than a year during the first half of January, and the pace of growth for the UK economy continued to ease during the final three months of 2007, the CBI said.

In a recent speech, Bank of England Governor Mervyn King also said that rates at 5.5% were arguably bearing down on demand.

In response to the threat of a recession in the United States, the Federal Reserve knocked 1.25% off the cost of borrowing during the second half of January.

But it is not believed the MPC will take such bold action due to the need to balance cuts against its 2% inflation target.

Howard Archer, chief UK and European economist at Global Insight, said there was considerable pressure on the Bank of England to take affirmative action and combat the possibility of a major downturn.

He said: "Despite calls for a 50 basis point reduction, we expect the Bank of England to trim interest rates by 25 basis points to 5.25% on Thursday.

"We suspect that only a further very sharp fall in equity prices next week and last minute data indicating that the UK growth outlook has started to deteriorate sharply could possibly prompt a 50 basis point cut."

Copyright © PA Business 2008