Pressure is mounting on the Bank of England for an emergency interest rate cut this week as the severity of the global downturn wreaks more havoc.

Sharp stock-market falls in London, New York and the Far East last week are expected to persuade the US Federal Reserve to cut rates to just 1 per cent, perhaps as soon as tomorrow.

Central bankers announced coordinated rate cuts on October 8. Now the Bank of England and European Central Bank are also mulling over further decreases to reduce the impact of recession on households and businesses.

Gordon Brown hinted at a second round of reductions yesterday. “Inflation is . . . coming down over the next few months and that will mean that it gives scope to all the monetary authorities, including the Bank of England, to make a decision about interest rates,” the Prime Minister said.

The Federation of Small Businesses said the most helpful thing would be a rate cut of up to 1 per cent. “Inflation is yesterday’s story,” a spokesman said. It’s about the economy now.” The Bank of England’s Monetary Policy Committee (MPC) is not due to meet until next week but may hold an emergency session before then to approve a coordinated action. The European Central Bank is also scheduled to meet on November 6 but is now expected to move to reduce the cost of borrowing before then.

Sushil Wadhwani, a former member of the MPC who runs Wadhwani Asset Management, said there was little to be gained by delaying a rate cut. “They need very quickly now to get ahead of the curve,” he said. “The time has arrived to deliver positive surprises – it is psychological warfare.”

Sir Richard Branson, founder and head of Virgin Group, said: “We have a much bigger problem than inflation head of Virgin Group, said: “We have a much bigger problem than inflation now – we need to avoid a recession. The Bank of England needs to be bold. [A cut] would help but I think it’s too late now.”

David Kern, economics advisor, at the British Chambers of Commerce, said: “We want to see a half per cent cut at the next meeting and a further cut to 3.5 per cent shortly after that, so that interest rates are one percentage point lower by Christmas. The major central banks have done quite a lot to shore up the markets but it is clear that they will have to do some more.”

The CBI has also called for a 0.5 per cent rate cut after new GDP figures confirmed that Britain was in a recession. Richard Lambert, the director-general, said the numbers supported the view that the pace of inflation would fall rapidly.

However, Sir Philip Green, the Top Shop to BHS billionaire, said that a rate cut was not a priority. “All the effort should be to get some confidence and liquidity back into the markets - to make sure this Government money is going in and is helping those who need it.”

The Prime Minister will use a speech to business leaders today to defend the decision to tear up limits on public debt. “The responsible course is to borrow now to maintain growth and output,” Mr Brown is expected to say.

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