LONDON (AP) — Britain is poised for a step into the unknown as the Bank of England prepares to boost the amount of money in the economy to fight recession, a member of the Bank's Monetary Policy Committee said yesterday.

Andrew Sentance, a member for two-and-a-half years of the panel which sets base interest rates in Britain, said a policy of "quantitative easing" — effectively printing money — is a likely tool for stimulating the economy and avoiding deflation as interest rates approach zero. Britain's base rate is now one percent.

"On an objective assessment of probabilities, a persistent and prolonged deflation still remains an outside risk, in my view," Sentance said in a speech to the Institute of Economic Affairs.

"But there is a strong case for providing additional stimulus to the economy to head it off more decisively, as well as helping to limit the potential long-term damage to the UK's supply capacity from a prolonged and deep recession."

While suggesting that expanding the money supply may be the next step, Sentance added a note of caution.

"Because we have little experience of the deployment of quantitative easing, any move to adopt this form of stimulus will be a step into the unknown," he said.

"It is therefore important that the MPC operates such a policy under a clear and transparent framework, agreed with the Chancellor (of the Exchequer), as with our existing interest rate policies.

"It is also important to emphasize that the operation of quantitative easing does not change the objective of policy which is to maintain price stability, as defined by the inflation target."

Sentance said the sharp fall in the value of the pound against the euro and the US dollar put Britain in a potentially advantageous position when the economy recovers.

"Both in terms of the recent change in the value of sterling and its level in real terms, we are seeing a boost to competitiveness which we did not see in the early 1990s and early 1980s recessions," he said.

"The manufacturing firms I have visited over my period of two-and-a-half years on the MPC should be well placed to benefit from a more competitive level of the pound," he said.

He noted that manufacturers in Britain had plenty of spare capacity — some 70 percent of companies say they are working below capacity, according to the Confederation of British Industry survey for January.

Separate figures released by the Office for National Statistics Tuesday showed business investment in Britain in the fourth quarter of 2008 was down 3.9 percent from the previous quarter and down 7.7 percent from a year earlier.

But Sentance noted that the fall in the pound against other currencies will make British products easier to sell overseas — and British assets cheaper to invest in — once demand recovers.

"Over a period of time, a competitive pound puts British manufacturing in a much better position to win new markets at home and abroad, mitigating the negative impact of the recent sharp downturn in global demand," Sentance said.