The Bank of England has slashed its key interest rate by one percentage point to 2%, the lowest level since November 1951. The cut comes amid mounting evidence that Britain faces a deep recession.
Property and car figures show effects of slump
Sterling had hit a record low against the euro ahead of the decision. The euro hit 86.95 against the British currency, the strongest it has been since its creation in 1999. It fell back to just above 86p after the ECB cut its key rate by 0.75 points.
'Business surveys have weakened further and suggest that the downturn has gathered pace,' the BoE said in a statement following its latest two-day monthly policy meeting. 'Consumer spending and business investment have stalled, while residential investment has continued to fall,' it added.
The bank had already chopped a record 1.5 percentage points off interest rates in November as the country faced a sharp drop in inflation and appeared set for a sharp economic slowdown.
Central banks around the world have been slashing interest rates as the impact of the global financial crisis puts the brakes on economic growth.
