What the Bank has to weigh up next week

The Bank of England is expected to hold interest rates steady next week but grim economic news clearly leaves open the possibility of another quarter-point cut as the central bank prepares its new forecasts.

Only 5 out of 65 analysts polled by Reuters this week predict the Bank's Monetary Policy Committee will cut rates for the second month running and the fourth time since December when it rounds off its two-day meeting next Thursday.

But 40 say the Bank will cut borrowing costs by another quarter-point in June, taking rates down to 4.75 percent, as worries over slowing growth topple concerns about rising inflation.

Arch-dove David Blanchflower clearly looks as if he will call for lower rates next week. He said this week the economy faced recession and house prices crashing 30 percent if the central bank did not take urgent action.

But hawks like Andrew Sentance and Tim Besley seem worried about rising prices - they opposed last month's quarter-point cut.

Here are some of the factors the Bank will consider at its two-day meeting.

FINANCIAL MARKETS

While the credit crunch continues, the Bank last month unveiled a new scheme that allow banks to trade their hard-to-shift mortgage assets for safe government bills. Hawkish policymakers have said this will soothe credit conditions and allow the central bank to get on with its main job of fighting inflation.

INFLATION

Inflation remains stubbornly above the 2 percent target and is expected to rise further in coming months to 3 percent and perhaps even higher, which would trigger the Bank Governor writing an explanatory letter to the government.

HOUSE PRICES

The housing downturn is clearly gathering pace with Britain's biggest mortgage lender showing prices falling at their fastest annual rate in 15 years. Mortgage approvals have also hit a record low, pointing to further price weakness ahead.

STERLING

The pound has lost much ground on a trade-weighted basis and this is raising the upside risks to inflation.

ECONOMIC GROWTH

GDP growth came in at 0.5 percent in the first quarter. Governor Mervyn King has described this as not too bad. Most analysts expect things to slow down further as the year wears on.

RETAIL SALES

Retail sales over the first quarter were surprisingly robust, a point noted by policymakers. But survey evidence has been much weaker though some of this could be because of distortions around the timing of Easter.