As an opening salvo in the war to halt the recession that is besieging Britain, it was a forceful one. The Bank of England's decision to wheel out its biggest guns with last week's daring 1.5 percentage point cut in interest rates to only 3 per cent, the lowest in half a century, was as impressive as it was appropriate.

Yet as the shock and awe from last week's fireworks show on Threadneedle Street swiftly fade, the inescapable questions are already being asked. Will it work? Will it be enough? Will the big bang from the Bank fizzle like a damp squib in the recessionary deluge?

Let's be clear: this commendably audacious action is closer to a palliative than a panacea. It comes too late for it to prevent recession, nor does it offer any sort of instant remedy.

The striking scale of the move undoubtedly will provide some instant, and much-needed, salve for business and consumer confidence, but interest rates take up to a year before their full effects on growth feed through, so the medicine will take time to work.

And more will be needed, too — probably much more. After the past weeks' frenzied scramble by the Treasury, the Bank and the Financial Services Authority to buttress the economy and the financial system, the task now confronting the authorities is best summed up by Labour's 2001 election slogan: “A lot done. A lot more to do.”

The scale of the peril besetting the economy, and the pace of its slide into the mire, was laid out last week with brutal clarity by the International Monetary Fund (IMF).

A month after it forecast that the UK economy would succumb next year to its first full-year contraction since 1991, shrinking by 0.1 per cent, the IMF drastically downgraded that assessment, predicting that GDP would plunge by 1.3 per cent in 2009 in the worst performance among the world's big developed economies.

The barrage of crushingly dire news from every part of the economy has chimed ominously with the IMF's grim verdict and is unlikely to relent. This week is likely to bring figures showing another leap in unemployment, by as much as 50,000, which would be the sharpest rise since the end of the previous recession, in 1992.

So it is clear that interest rates will almost certainly fall farther, to historically unprecedented lows. In fact, the Bank itself signalled in its statement last week that more rate cuts were on the agenda. It noted that, based on markets' present expectations of rates dropping to as low as 2.5 per cent, the Bank's new forecast, to be announced on Wednesday, “contains a substantial risk of undershooting the inflation target”. At the same time, the Bank acknowledged the danger of a “continued severe contraction in the near term”.

Mutterings from some misguided critics of the Bank that it was playing with inflationary fire seem very wide of the mark. Inflation may yet be back, but in the emerging climate of global recession and plunging commodity prices, to fixate on it at present is to risk fighting yesterday's war.

The far greater danger for the Bank is that rate cuts, even very sharp ones, prove to be much less potent a weapon now than they have in the past — that they deliver a far smaller “bang for the Bank's buck”.

Even after lenders seem to have been successfully browbeaten by the Chancellor into passing on last week's base rate reduction in cuts in their key mortgage rates, overall credit conditions are still likely to stay tighter than would be usual with official rates as low as 3 per cent.

The banks continue to face real dangers in raising funds to lend on in money markets that remain in a state of semi-seizure. There is a real danger, too, that if banks are forced to lend more cheaply, they will simply respond by offering fewer new loans and with more onerous conditions.

Nor is it clear that, even if the banks are prepared to lend, consumers and businesses will want to carry on borrowing in recessionary times that leave them fearful over the future.

As Paul Dales, of Capital Economics, notes, even in normal times the Bank's own economic model points to a 1.5-point base rate cut lifting GDP growth by about a half-point over the next two years - and these are far from normal times.

So we should expect the Bank to drive base rates much lower still. Yet, although this will be necessary, it will be far from sufficient to win the war to prevent a long and deep recession. It is now vital that, while the Bank campaigns aggressively through interest rates, the Chancellor opens up a second front and deploys fiscal firepower, through tax cuts and higher public spending, to defeat the downturn.

Unfortunately for Alistair Darling, Gordon Brown's past largesse has left the Treasury's war chest badly depleted. Government borrowing was already set to hit £43 billion this year before recession began to eat into tax revenues.

Now it looks set to soar to above £60 billion and to £100 billion or more after that. Worse still, to be genuinely effective, any fiscal infusion first will have to reverse a planned squeeze on government spending next year, and also extend the one-off tax giveaways of higher income tax allowances and lower stamp duty forced on the Chancellor by the 10p tax fiasco and the housing slump, that are otherwise set to disappear.

So Mr Darling will have to find about £11 billion even before contemplating any new measures if he is to offer a plausible boost to the economy.

Robert Chote, of the Institute for Fiscal Studies, suggests that a package worth at least about £15 billion, or 1 per cent of GDP, will be required to have a meaningful effect.

Even in the Treasury's straitened circumstances, the Chancellor is likely to feel that, politically, this is money he will have to find. Economically, at a time when the power of interest rates is curtailed by the credit crunch, he probably should.

However, it will be all the more crucial that, with the Government already so deep in the red, that every penny is made to count - which means that any giveaway must be spent, and spent quickly, to bolster demand. Suggestions that money could be pumped into infrastructure plans point to one mistaken course: long lead times for capital projects would make this slow to feed through and trying to hasten it would lead to waste.

A mix of judiciously targeted tax cuts and some extra current, rather than capital, spending is what is required.

Critically, tax cuts need to flow to those who will spend the proceeds, rather than save them. A general cut in value-added tax looks like one appealing option.

A fiscal rescue package for the economy ultimately will have to be paid for, so any measures will need to come with a credible commitment to restore the public finances to a more sustainable state in future. That, in turn, will mean higher taxes and a weaker recovery in the longer run. Yet Keynes's maxim that “in the long run we are all dead” has rarely been more apt. The Bank is doing its bit. Mr Darling must now do his.

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