LONDON (AP) — The Bank of England began its two-day rate setting meeting yesterday amid speculation it is on the verge of increasing the domestic money supply — a development that would overshadow an anticipated cut in official interest rates.

Surveys released as the monetary policy committee began deliberations showed continuing weak consumer confidence and ongoing recession in the country's huge services sector, putting pressure on the central bank to find other ways to stimulate growth as interest rates reach a floor.

Benchmark rates are expected to fall for the sixth consecutive month, with most economists plumping for a 0.5 percent cut from the current one percent, already a record low in the 315-year history of the bank.

But attention is turning to an announcement on so-called quantitative easing, which aims to increase the amount of money in the economy through the creation of central bank money to buy up assets such as government gilts and commercial paper.

The Bank of England revealed last month it had sought government approval for quantitative easing and Treasury chief Alistair Darling hinted in an interview published on Tuesday that it could begin increasing the money supply this week.

Economists suggest the central bank could create about £150 billion ($212 billion) of new money.

While the bank may not be physically printing bank notes, it would be increasing the amount of money in the economy by buying assets from banks without borrowing to fund its purchases — effectively creating new money.

Investec chief economist Philip Shaw said the move "should in principle encourage the banks to lend to private sector agents such as households and businesses, stoking monetary growth and stimulating activity".

Whether the tactic will work, however, depends on the extent to which struggling banks pass on the extra funds created by the Bank of England.

"We suspect that in the UK there will be a considerable degree of reserve hoarding," Shaw said.

The bank will launch quantitative easing against the grim backdrop of a deepening recession. Its own forecasts published last month predicted a year-on-year fall in output of almost four percent and deputy governor Charles Bean said the odds were in favour of an even heavier decline.