Mervyn King will settle down to host his 130th Monetary Policy Committee (MPC) meeting on Wednesday, secure in the knowledge that he is safe in his seat for another five years. Yet satisfaction at his re-appointment, announced last week by Alistair Darling, is likely to be tempered by concerns over gloomy news from Britain and abroad. Mr King has had to look on while the US Federal Reserve took drastic action to steady the American economy after the markets nosedived two weeks ago. It backed up its emergency 75-basis-point cut on January 22 with another 50-basis-point cut last week.

Anyone expecting similar drama from the Bank of England is likely to be disappointed. The MPC prefers quarter-point steps to larger cuts or rises. The Bank last cut rates by 50 basis points more than six years ago, in November 2001, a move prompted by fears of a global recession after the September 11 terrorist attacks. Mr King sounded a warning two weeks ago not to expect any Fed-style dramatic moves. He said: “We cannot avoid some volatility in the short run and it is important that everyone understands the limits to the ability of central banks to smooth the economy.”

Each month The Times looks at the factors that can weigh most heavily with the MPC as it decides the bank rate. Here is the latest assessment:

Growth and activity: the brakes have been applied

Economic growth in the UK slowed to 0.6 per cent in the last quarter of 2007, down from 0.7 per cent in the previous quarter. This result, stronger than expected, highlighted the fact that although the British economy remains likely to slow sharply, it is starting from a fairly healthy position, with some momentum. Economists still predict that growth is unlikely to fall much below 2 per cent in 2008.

Activity in the housing market has also slowed, with mortgage approvals at their lowest in December than at any time since the Bank of England's records began in 1995. House prices are also continuing to fall, with Nationwide reporting a 0.1 per cent fall in January. This could spark fears of a consumer spending slowdown as homeowners struggle with higher mortgage costs while the value of their property falls. Yet there was a glimmer of hope from insolvency figures, which showed a drop in personal insolvencies in the last quarter of 2007. This glimmer may be snuffed out soon, as experts continue to forecast a sharp increase in the number of people going bankrupt in 2008.

Costs and prices: household bills are rising

Inflation remained steady at 2.1 per cent in December for the third month running, but other gauges of price pressures add to the dilemma facing the MPC. Surging fuel and food costs sent prices at factory gates soaring last month at the fastest annual pace for 16 years. They leapt by 0.5 per cent in December, lifting their annual rate of increase to 11.2 per cent - the highest since August 1991, when Britain was in the depths of a recession. In addition, the inflation figures came before most of the major energy companies announced double-digit rises in prices.

Worries about soaring bills for food and fuel will be good ammunition for hawkish members of the MPC to argue against aggressive rate cuts.

The international economy: waiting and watching

The Fed's swift action to counteract the impact from plunging stock markets bolstered confidence in the United States, but employment figures released last week delivered a blow to those hoping that the threat of a recession was fading. They showed that US employment fell for the first time since 2003, with non-farm payrolls falling by 17,000 jobs. Economists had forecast a gain of about 70,000 jobs.

Rate verdict: quarter-point cut

The last MPC vote was 8-1 for no rate cut, but events since are likely to prompt it to make a quarter-point cut. A half-point cut is unlikely.

WORLD OUTLOOK

The International Monetary Fund said that global growth would slow this year and called on banks to come clean about their sub-prime losses

Jaime Caruana, a director of the IMF's financial markets committee, said that “clear disclosure” of banks' credit crunch and sub-prime exposure was “very important”. Both the IMF and the European Commission denied that a recession was on the cards

However, George Soros, the 67-year-old financier and philanthropist, was not so circumspect. He said: “Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend”

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