The last time the Bank of England cut interest rates to 2 per cent was a month after the Second World War broke out. Clearly, things are not as grim as they were then. But it doesn’t look good.

The Bank used typically restrained language yesterday to explain its decision. The language used by those struggling to keep businesses afloat is more colourful.

The Bank said that consumer spending and business investment had stalled. Many retailers would reply that consumer spending has driven full speed into a brick wall, which is why they are waging an increasingly frantic price war. After the Bank cut rates from 4.5 per cent to 3 per cent last month, the global economy also took a turn for the worse. And despite the efforts to shore up the banking system, the supply of credit remains weak. Given that the risk of inflation continues to recede and the danger that we might be heading for a debilitating bout of deflation to grow, cutting rates by one percentage point looks more than justified.

The question is how effective it will be in reviving the economy. That depends partly on how much of the cut is passed on by the banks. Halifax, the country’s biggest mortgage lender, said that it would cut its standard variable rate by just one quarter of one percentage point, from 5 per cent to 4.75 per cent. But almost a third of mortgage payers are on tracker loans, for which the interest payments automatically fall when base rates are cut. If you take in the effect of last month’s cut, about four million people will see their monthly payments reduced by an average of £210.

Of course, millions of savers will be worse off because of yesterday’s cut. Even so, if you add in the impact of the VAT cut and the fall in fuel bills expected next year, consumer incomes are set for a big boost. That should mean the downturn is shorter and shallower that it would have been otherwise.

But as the Governor of the Bank has made clear, the most important factor that will determine the depth and length of the recession is increasing bank lending. The Bank said yesterday that it was “unlikely that a normal volume of lending would be restored without further measures”. Infuriatingly, officials refused to say whether this was a reference to the outlook before or after the latest cut in rates.

Either way, there is little doubt that further measures will be needed in terms of interest rate cuts and other interventions in the credit markets. The good news is that the Bank and the Government appear ready to take those measures. The bad news is that they will take time to take effect and a nasty recession looks increasingly inevitable. Perhaps we will look back at yesterday’s cut as the beginning of the end of the downturn. More likely, it is the end of the beginning.

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