* BoE's Sentance says more monetary easing probably needed
* Business investment down at sharpest rate since 1991 in Q4
* Pace of decline in retail sales eases in Feb
* Mortgage approvals slump 43 percent on a year ago in Jan
By Fiona Shaikh and Christina Fincher
LONDON, Feb 24 (Reuters) - The British economy needs more help from the Bank of England, with the purchase of assets using newly-created money looking more and more likely as interest rates near zero, policymaker Andrew Sentance said on Tuesday. The normally-hawkish Monetary Policy Committee member's comments came alongside another bleak housing report showing mortgage approvals down 43 percent on the year and firms cutting back on investment at the sharpest rate since 1991.
Shops are also shedding jobs at the fastest rate on record, according to the Confederation of British Industry, although the rate of decline in sales eased markedly in February.
"If the recession is prolonged and deep, there is an increased risk of deflation," Sentance said in a speech.
"A persistent and prolonged period of deflation still remains an outside risk, in my view. But there is a strong case for providing additional stimulus to the economy to head it off more decisively."
The BoE has already slashed rates to a record low of 1 percent from 5 percent since October and the MPC voted unanimously this month to ask the government for quantitative easing powers because there is little room left for rate cuts.
Details on how the MPC may buy gilts or other assets to boost the money supply in an effort to stimulate demand in the economy are expected this week.
"We continue to expect quantitative easing to begin at next week's meeting," said Malcolm Barr, an economist at JP Morgan.
Britain's economy plunged into recession at the end of last year of last year and the BoE expects it to shrink sharply for several months to come before starting to recover at the end of this year.
However, Sentance said the risks remained to the downside on those forecasts and there was little sign yet of any miraculous turnaround in the latest batch of economic surveys.
COMPANIES CUT INVESTMENT
Business investment fell at its fastest annual rate since 1991 in the fourth quarter of last year, data from the Office for National Statistics showed on Tuesday, with investment down 7.7 percent on the year and 3.9 percent on the quarter.
Mortgage approvals slumped 43 percent in January compared to the same month last year, the British Bankers' Association said.
Approvals edged up from December to 23,376 but that is still indicative of a very depressed market -- only a few thousand above November's record low -- and suggest house prices will continue to fall this year.
Economists say the return of nationalised lender Northern Rock to the mortgage market will help -- the government said on Monday the bank would boost lending by as much as 14 billion pounds ($20.39 billion) in the next two years -- but conditions will remain tough.
"Although lending is unlikely to remain at its recent rock bottom levels for the rest of 2009, a significant recovery in mortgage lending is unlikely before 2010," said Ed Stansfield, a property economist at Capital Economics.
One glimmer of hope came in from the CBI retail sales survey which showed sales on the high street falling at a much slower pace than both retailers and economists had forecast in February.
The CBI retail sales balance rose to -25, its highest since June 2008, from -47 in January and a series low of -55 in December. Analysts and retailers had expected a reading of -52.
"Despite the better-than-feared survey for February, it remains difficult to be anything else but pessimistic about the prospects for consumer spending over the coming months," said Howard Archer, an economist at Global Insight.
(Additional reporting by David Milliken, Sumeet Desai and Matt Falloon, writing by Matt Falloon; Editing by Andy Bruce)