Interest rates must be cut today by at least a further full percentage point, to an historic low of 2 per cent, to stave off a severe economic slump, a majority of The Times Monetary Policy Committee will recommend this morning.

Still more drastic action by the Bank of England is needed, even after last month's 1.5 percentage point cut in base rates to a 54-year low of 3 per cent, if the scale of the economy's severe downturn is to be limited, the independent panel of experts says.

Six of the nine Times MPC members voted to recommend another aggressive reduction in Bank rate by a full percentage point, while one, Sushil Wadhwani, backed a repeat of last month's 1.5 point cut.

Yet even cutting rates to 2 per cent, a level last seen in 1951, may have limited effects in warding off a deep recession, with the lending drought hitting consumers and business greatly reducing the impact of cheaper borrowing costs, The Times panel says.

Martin Weale, director of the National Institute of Economic and Social Research, said: “A 1 per cent cut is likely to have more impact than sacrificing a goat — but it is difficult to have any real conviction that it will do much good. It is widely recognised that the underlying problem is a lack of credit and it is quite probable that appreciably more money will need to be put into the banks before this problem is resolved.”

Charles Goodhart, a founding member of the Bank's MPC, agreed that with all banks, as well as other investors, hoarding funds, action was needed to stimulate lending: “A response to that is to make liquid deposits so cheap that there is an incentive to use the funds more productively.”

Bronwyn Curtis, of HSBC, agreed that quantity, rather than the cost of borrowing, was the key cause of damage being inflicted on the economy. She argued that the threat of deflation by itself justified a one-point cut in rates.

Sir Alan Budd, former chief economic adviser to the Treasury, agreed that “a further significant cut is justified”. Geoffrey Dicks, of Royal Bank of Scotland, said that a cut of less than one point would risk disappointing markets expecting a big move.

Anatole Kaletsky, chief economics commentator of The Times, said that with the world economy caught in a deflationary spiral and interest rates worldwide “heading towards zero”, the Bank should lead the way with a one-point cut, although he cautioned against more extreme measures.

Arguing that rates should fall by 1.5 points, however, Dr Wadhwani said: “The severity of the economic situation is such that extreme measures are required. We need to avoid Japanese-style deflation, which could result in a prolonged recession.”

Two significant dissenting votes shattered The Times MPC consensus.

Rupert Pennant-Rea, a former Deputy Governor of the Bank, said that the credit drought made today's rates decisions “a sideshow” and attacked banks for “simply not performing their vital role”. Noting that last month's 1.5-point cut in rates “did little or nothing to improve financial conditions, because it is hard to stimulate a corpse”, he argued that the Bank should preserve its base rate firepower for now and hold rates.

Sir Steve Robson, former Second Permanent Secretary at the Treasury, said that the risk of a big rate cut triggering a plunge in the pound, in an “inflation-inducing rout”, as well as the Government's precarious financial position meant that the Bank must be cautious. He urged only a quarter-point cut in rates today.

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