By Sven Egenter and Fiona Shaikh
LONDON (Reuters) - The outlook for the British economy is weakening so quickly that the Bank of England on Wednesday signaled it was ready to pump in more money, potentially as soon as October.
Minutes from the bank's September meeting showed most policymakers believed the stresses of the past month had strengthened the case for an "immediate" return to the policy of quantitative easing.
It also discussed reducing its already ultra-low interest rates.
Action to support the economy would be welcomed by the Conservative-led coalition after figures showed higher government spending and weak tax receipts drove public sector net borrowing to a record high for a month of August.
Treasury minister Danny Alexander insisted that the government was sticking to its austerity program after reports that ministers were looking at investing an extra five billion pounds on capital projects to ward off fears the economy could fall back into recession.
With interest rates at a record low of 0.5 percent, attention is focusing on whether the Bank of England will revive its program of asset purchases after spending 200 billion pounds in 2009-10, mainly on buying gilts, to help drive down borrowing costs for business.
At the meeting, arch-dove Adam Posen remained the only one to vote for an additional 50 billion pound in asset purchases.
But the minutes showed that most members of the Monetary Policy Committee thought it was increasingly likely that more asset purchases would become warranted at some point.
"For most members, the decision of whether to embark on further monetary easing at this meeting was finely balanced since the weakness and stresses of the past month had significantly strengthened the case for an immediate resumption of asset purchases," the minutes said.
"For some members, a continuation of the conditions seen over the past month would probably be sufficient to justify an expansion of the asset purchase program at a subsequent meeting."
Sterling fell to an eight-month low against the dollar while gilts rose after the data.
The minutes said that those voting for an unchanged policy in September had seen some merit in waiting to see how actions taken by overseas authorities would develop.
Since the September meeting, a slew of bad news from the economy, the ongoing euro zone debt crisis and rising tensions in financial markets have stoked fears that Britain could slip into recession again.
Business Secretary Vince Cable, a member of the Liberal Democrat junior coalition partner, has backed calls for more quantitative easing to help the economy.
Economists said it was now a question of when, not if, the Bank would move.
"The minutes of the September MPC meeting are appreciably more dovish, opening the door wide to more quantitative easing by the Bank of England and very possibly sooner rather than later," said Howard Archer, of IHS Global Insight.
"Barring a marked improvement in the economy over the next few weeks (which is currently hard to see), we expect the MPC to approve a further 50 billion pounds in quantitative easing during the fourth quarter," he added.
"A move as soon as October is entirely possible, but we suspect November is more likely."
The Bank will publish its latest quarterly inflation report in November and changes to policy often come in the same month as these reports are produced.
On Tuesday the International Monetary Fund slashed its growth forecast for Britain to 1.1 percent for 2011 and 1.6 percent for next year.
External member Martin Weale, who only dropped his call for higher rates in August, and deputy governor Charles Bean have acknowledged the worsening outlook, and the government has left little doubt that it would like to see more QE. In addition, central banks have moved into action again globally.
Inflation remains a headache for the Bank. It is currently running at 4.5 percent, more than double its target, and the Bank itself says it is likely to top five percent before coming down next year.
(Editing by Patrick Graham)