In December, MPC members were unanimously in favour of cutting rates suggesting their mood is now firmly in the direction of lower interest rates to forestall a slide into recession.

But after cuts totalling 1.25 percentage points to 6.25% over the past three months, including a half percentage point cut in December, most market analysts believe the MPC will hold rates steady this month.

Mark Miller, economist at Morgan Stanley, said: "I think the Bank will want to get a clearer picture of high street activity over December, plus they would like to see the progress of economic growth in the fourth quarter, which they will have by the February meeting. On balance the argument suggests they will leave rates on hold."

Business fears

However, job surveys out this week have led to calls for further cuts.

Eddie George: mixed rate signals

Most British businesses expect the economy to plunge into recession as economic growth falls below zero by mid-1999, according to a survey by business advisers BDO Stoy Hayward.

Meanwhile, an employment review by the Engineering Employers' Federation (EEF) reports that 18,000 engineering jobs were lost in the first nine months 1998 and predicts 100,000 would be lost by the end of this year.

EEF director general Graham Mackenzie said: "Engineering remains in the grip of recession. With UK interest rates at more than twice the level of our European competitors and poor prospects for the rest of 1999, there is still a need for further cuts in rates at the earliest opportunity."

But there has also been positive economic news with improving retail sales for November together with a survey indicating that the contraction of the manufacturing sector may have bottomed out and data showing consumer credit up strongly.

George ambivalent

Bank of England and MPC chairman Eddie George has sent mixed signals this week.

He said on Monday that the gap between UK and eurozone interest rates and Britain's possible future entry into the single currency does weigh on interest rate decisions. "If we are in a situation which is likely to deliver continued low inflation, then yes indeed interest rates can come down," he said.

However, Mr George has also said that higher growth and lower unemployment in the UK compared to its Euroland neighbours in recent times meant that Britain needed higher interest rates.