Rate cut is welcomed but lenders must pass it on I History of Britain's interest rate I Analysis: More shock and awe

The Bank of England today ordered a further, drastic one percentage point cut in interest rates to 2 per cent, a historic low not seen since November 1951.

The radical action by the Bank’s rate-setting Monetary Policy Committee (MPC) followed hard on the heels of last month’s surprise 1.5 percentage point rate cut that reduced rates to a 54-year low of 3 per cent.

The latest move came as the nine-member MPC stepped up its newly aggressive campaign to stave off the threat of a severe and prolonged recession.

Times Archive, 1951: First rise in 11 years takes rate to 2.5%

Clearly, simply, and starkly, the Chancellor presented the most up-to-date picture of the country's economic plight

• Times Archive, 1932: Crisis pushes rates to 2%

• Times Archive, 1939: Bank rate back to pre-war 2%

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Multimedia

• Full statement from the Bank

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After facing a barrage of attacks, accusing it of previously moving too slowly to stem the slump in the economy, the Bank has, over the past month, decisively switched tactics in response to a swift and severe worsening in the economic outlook.

Mervyn King, the Bank’s Governor, pledged last week that: “We will take whatever action is required to steer the economy back into calmer waters.”

In a bleak statement, the Bank said today that the downturn in Britain's economy had "gathered pace" "Consumer spending and business investment have stalled, while residential investment [that is, housebuilding] has continued to fall," it said.

The MPC noted that other leading world economies were also floundering, while the recession was being magnified by the vicious squeeze on lending conditions by banks. "Money and credit conditions remain extremely difficult," it said.

The MPC decision came as other central banks around the world also rushed to shore-up their economies with a global wave of drastic rate cuts.

The European Central Bank today cut borrowing costs by three-quarters of a point to 2.5 per cent today, in a bigger move than the half-point cut that economists had expected.

Rates were also cut today across other developed economies.Sweden's central bank cut its key rate this morning by a record 1.75points, to 2 per cent, in its the third reduction since October, and the biggest since 1992. New Zealand announced a record cut of 1.50 points, bringing its rate down to a five-year low of 5 per cent, and acknowledging that further cuts would probably be necessary. Indonesia made a surprise quarter-point cut to its rate, which takes the interest rate to 9.25 per cent. The Bank of Thailand cut rates by a full percentage point points to 2.75 per cent. The Reserve Bank of Australia surprised markets with a larger-than-anticipated 100 basis-point cut to 4.25 per cent on Tuesday.

Pressure on the MPC to follow last month’s steep reduction in Bank rate with another swingeing reduction mounted this week after another spate of dire figures that suggested that the economy is shrinking at an accelerating pace as recession tightens its grip.

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