By Jonathan Cable
LONDON, Nov 12 (Reuters) - The Bank of England is certain to follow up last week's stunning 150 basis point cut to interest rates with another 50 point chop in December as it tries to drag Britain out of recession, a Reuters poll found.
The poll of 57 economists, taken after the bank issued its quarterly Inflation Report, found rates falling further than previously expected, bottoming out at 1.5 percent in the second quarter as opposed to 2.0 percent in last week's poll.
The Bank said on Wednesday the British economy will shrink sharply next year and inflation could drop to below 1 percent in two years, half the bank's target and a far cry from the current 5.2 percent, and leaving plenty of room for further cuts.
"The November Inflation Report suggests the MPC has an enormous amount of unfinished business in reducing rates," said Malcolm Barr at JP Morgan, who now sees a 100 basis point cut in December with rates bottoming out at 1 percent in mid-2009.
Median forecasts see Bank Rate dropping to 2.5 percent next month, 2.0 percent by end-March, and then bottoming at 1.5 percent in the second quarter where it was seen staying.
This is a marked drop from a poll taken at the beginning of October which saw rates at 4.75 percent by the end of 2008 before dropping to 4.0 percent by the middle of 2009.
The new poll found 36 of them predicting the Monetary Policy Committee would cut rates by 50 basis points to 2.5 percent when it meets next month, 2 saw a 75 point cut and 12 a 100 point cut. One saw another 150 basis point cut, while six of them said rates would be left on hold.
This compares to a poll taken just last week that saw 20 out of 50 forecasting no change to rates in December, three seeing a 25 point cut, 24 a 50 point cut while only three predicted a 100 basis point cut.
The MPC surprised everyone last week when it cut rates by a whopping 150 basis points to a 50-year low of 3.0 percent as it turns its attention away from reducing high inflation and focuses on pulling the economy out of recession.
Thirty-six of 57 of the economists in the most recent poll saw rates dropping below two percent compared to 21 in 50 in last week's poll. British rates have never fallen below 2 percent since records began in 1694.
The pound tumbled to a record low against the euro after the report and to a 6-year trough against the dollar as markets are now expecting interest rates to come down more sharply, and even perhaps below two percent.
Data released last month showed the British economy shrank 0.5 percent in the third quarter, the first decline in 16 years, after stagnating in the second quarter. Recent data suggests the UK is now in recession, usually defined as two consecutive quarters of contraction.
The country has been battered by a slew of negative news of late with unemployment at its highest level in more than a decade, its dominant services sector shrinking at a record pace, while house prices, a bedrock of consumer wealth, have plummeted.
"We are certainly prepared to cut Bank Rate again if that proves to be necessary," Governor Mervyn King said. British Prime Minister Gordon Brown said on Wednesday that interest rates alone would not be enough and that there was increasing support for fiscal measures to help major economies weather the global downturn.
(FOR POLL DATA CLICK ON)
(FOR A FACTBOX CLICK ON) (Polling by Bangalore Polling Unit; editing by Tony Austin)