The European Central Bank is expected to cut interest rates again today as the European economy lurches closer to recession. Most analysts believe the ECB now has little option but to cut interest rates as further evidence of a downturn mounts daily.

A quarter percentage point cut from 3.75 per cent is the most likely outcome, although a half percentage point is said to be under discussion.

However, the ECB is not predictable and has confounded market expectations many times in the past.

The last time the ECB cut rates was September 17th, in a surprise move aimed at limiting the damage done by the September 11th terrorist attacks.

"It's always dangerous to assume anything with the ECB," said Mr Jim Power, investment director at Friends First. "But the ECB really has no choice but to cut today." The ECB may also be feeling the pressure following the latest US Federal Reserve interest rate cut this week. It also has every possible justification for cutting.

Area-wide inflation, the Bank's biggest obsession, slowed to 2.4 per cent in October, while the Bank expects it to fall below the key 2 per cent limit in the new year.

Bad news on the economic front in the euro zone is piling up by the day. German unemployment is expected to breach the four million level over the winter.

The euro-zone business climate index suffered its steepest ever fall to hit five-year lows in October. At the same time, the German banking federation said Germany was "already standing with one foot in recession".

It also predicted that, after stagnating in the second quarter, German gross domestic product may actually have shrunk slightly in the third and fourth quarters.