Interest rates close to zero in the near future have been forecast after the Bank of England cut the base rate to 1.5%, its lowest ever level.

Experts now expect that the coming months will also force the Bank to adopt other methods - such as boosting the money supply - to help the stricken economy.

Ben Read, at the Centre for Economics and Business Research, said: "We expect to see base rates at around 0.5% by the summer ... the logical next step would appear to be quantitative easing."

Quantitative easing is action to boost money supply, which can help combat deflation and drive up asset prices.

Though the image is vivid, this does not require ministers kicking printing presses into overdrive and distributing fistfuls of notes on the streets.

One method would be for the Bank of England to buy assets - Government bonds or private securities - and finance the purchases by simply writing up the reserves it holds for commercial banks.

Although the move will benefit more than four million households with tracker mortgages, it spells misery for savers hit by the Bank's drastic rate cuts since October.

But despite the gloom, the Bank said that rate cuts, Government spending plans, sterling's tumble and lower inflation will give a "considerable stimulus" as the year progressed.

David Kern, chief economist at the British Chambers of Commerce (BCC), added: "We believe it is an inadequate reaction to the rapid worsening in economic circumstances ... The outlook is dire, and the MPC must act forcefully."

But the more muted cut was better news for the pound, which reached 1.12 euros - its highest level against the single currency in almost a month - after recent heavy falls.

The rate reductions have come because the MPC's mandate is to keep official inflation at 2%. The Bank said there was a "significant risk" of undershooting its target with rates at current levels.

Inflation is well above target at 4.1%, but will fall dramatically as prices tumble on lower demand in a recession, while moves such as the Government's VAT cut add to the downward pressure.

The rate cut will knock £40 off monthly repayments on the average £150,000 mortgage although borrowers have been warned that most lenders are unlikely to pass on the cut in full to those on standard variable rates.

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