The Bank of England today ordered another half-point cut in interest rates to just 1.5 per cent, the lowest in 314 years, as it kept up its aggressive campaign to breathe life into the stalled economy.

The Bank’s further move came hard on the heels of cuts of 2.5 percentage points over the past two months alone.

But the move will disappoint struggling businesses and fearful workers and consumers, who were hoping for a more radical cut by another full percentage point or more.

The latest cut came amid soaring fears over Britain’s rapidly worsening prospects following a deluge of dire economic news and a mounting toll of job losses.

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

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Warnings have been voiced in recent days that the economy will suffer its worst year since 1946 and shrink by more than 2.5 per cent over 2009.

In its statement today, the Bank warned that the pace of contraction in the economy during the past quarter would prove more severe than the already steep 0.5 per cent decline suffered in the previous three months, and that "output is likely to continue to fall sharply during the first part of the year".

In a bleak assessment, the Bank also highlighted signs that consumer spending was faltering, and a worsening outlook for business investment and housebuilding, as well as the continued lending drought facing both household and corporate borrowers. It again emphasised that "further measures" were likely to be needed to boost the flow of lending.

The Bank's gloomy analysis came after Alistair Darling, the Chancellor, yesterday admitted that Britain was “far from through” the recession. He conceded that his forecast for the economy to shrink by no more than 1.25 per cent in 2009 was likely to prove too optimistic.

“This year is going to difficult. There are going to be some tough calls,” the Chancellor said.

Lord Mandelson, the Business Secretary, is also to warn today that the greater danger to the outlook comes not from inflation but from deflation — sustained falls in prices that would suck the lifeblood of demand out of the economy.

With anxieties growing that interest rates are proving ineffective in combating the deepening recession, the Treasury and Bank of England are examining ground-breaking measures to rekindle growth.

Moves being considered range from a strategy of “quantitative easing”, involving US-style moves to buy-up debt from banks to increase the flow of commercial lending and cut its cost, to a second recapitalisation of the banking system that could see billions more injected into leading high street banks.

With interest rates already at unprecedented lows, and tipped to fall to zero, or close to it, within a few months, a key worry for officials is that the Bank is running out of firepower, making the need for alternative weapons more pressing.

That concern may have been one factor that persuaded the Bank’s nine-member Monetary Policy Committee to conserve some of its rates ammunition for later in the year.

The noon verdict from the MPC that rates should be reduced by a half-point came after a fresh spate of job losses and company collapses across the nation.

With consumer spending faltering, Marks & Spencer confirmed that it is axing 1,200 jobs and closing 27 stores. Another 1,000 jobs are under threat at Cattle’s, a finance company, while Barclays is cutting 400 IT jobs. Viyella, the fashion business, also collapsed into administration this week putting more jobs in jeopardy.

City economists predict that unemployment, which is already rising at the faster than in the early Nineties recession, is set to top three million on the Government’s Labour Force Survey figures before the end of the year.

Meanwhile, Treasury chief Alistair Darling moved to quash speculation that the government was planning to print money to ease the impact of recession after he told the Financial Times in an interview published Wednesday that he was considering a policy of “quantitative easing.”

“Nobody is talking about printing money,” he told reporters after a Cabinet meeting on Thursday. “There’s a debate to be had about what you do to support the economy as interest rates approach zero, as they are in the United States. But for us that is an entirely hypothetical debate."

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