---- by VICTORIA MAIN ----
LONDON (AFX) - The Bank of England is widely expected to lower interest rates to 5.25 pct from 5.50 pct today, but economists are not ruling out a cut of 50 basis points.
All 22 economists surveyed by AFX News are looking for the banks' monetary policy committee to cut the repo rate by 25 basis points in its third reduction this year, aimed at cushioning the UK economy against the U.S. slowdown.
However, economists said Friday's shock rise in U.S. unemployment coupled with Thursday's sharp decline in UK service sector activity, ongoing concerns about the impact of the foot-and-mouth crisis and the timing of the UK election have left open the possibility of a cut of 50 basis points.
Bank of America economist Jeremy Hawkins put at 30 pct the chances that the MPC will lower rates by 50 basis points for the first time since February 1999.
"This is particularly the case in light of the U.S. payroll data on Friday. The MPC has shown that it is concerned about the external economy, and Friday's figures suggest that the U.S. may be worse than previously anticipated," he said.
"Also, the UK service sector survey put out last week was a lot weaker than expected. So they've got the scope to cut by 50 basis points, with inflation so low," he said.
Investec chief economist Philip Shaw agreed a larger cut is a possibility.
"The chances of a 50 basis point cut are not insignificant. It's fairly clear that there are downside risks to the UK economy from foot-and-mouth, and manufacturing appears to be very vulnerable to a further downturn in the global economy, particularly that in the U.S.," he said.
"Consequently, the chances of a 50 basis point reduction are there. Those may be increased by the fact that the election is likely to be on June 7, the day after the following MPC meeting," he said.
Shaw said, for all the MPC's independence, it was unlikely to want to cut rates the day before the election.
Barclays Capital economist David Hillier estimated the chances of a 50 basis point cut at 15-20 pct, largely due to external factors. "It's the numbers coming out of the U.S. that's the key thing really. If you think about this thing, all along it's been driven by what's happening overseas rather than by at home," he said.
"If you're looking for a 50 basis point cut, you look towards what's happening in the U.S., and you have to believe that that big drop in payroll numbers is something that wasn't accounted for when the Federal Reserve cut by 50 basis points intermeeting," he said. Deutsche Bank economists too canvassed the possibility of a large MPC cut.
"While we stick to our forecast of only a 25 basis point cut, the chances of 50 basis points are now greater than no move at all," they said in a research note.
On reflexion, Bank of America's Hawkins was also of the view that the MPC would "prefer to live with gradual 25 basis point cuts rather than risk rocking the boat with something larger".
Equally, Investec's Shaw said: "We think overwhelmingly that the likely event is going to be a 25 basis point cut this week, and furthermore we've pencilled in another one for the July MPC meeting".
Hawkins agreed: "We think they'll cut again in July, once the June election is behind us. But if they do 50 this week, there'll be nothing in July."
Barclays Capital's Hilliard believed that "if they cut by 25 basis points this week, they'll cut again in July and I think that will be the last time".
He added however, "If they cut by 50 basis points, I'll have to think again because that could imply there's more to come again."