The Bank of England has slashed interest rates in by 1.5% to 3%, its lowest since 1955. This follows another 1.5% rate cut last month.

Ths is the first time the Bank has cut rates by more than half a percentage point since gaining its independence in 1997.

BBC economics editor Hugh Pym said:

"The Bank of England is using terms like 'very marked deterioration in the outlook' and 'severe contraction'.

"It is clearly very concerned about the possibility of a prolonged recession in the UK.

"The risks of high inflation have now evaporated, and because the bank is worried that inflation will now fall well below its target, it has felt the need to come up with this cut, which is much bigger than expected."

Stephen Herring, tax partner at BDO Stoy Hayward, said today:

"While businesses will welcome today's interest rate cuts, they should be looking to the Pre Budget Report to see if fiscal policy will support the relaxation of monetary policy. Businesses will be looking for measures to relieve erosion of profitability and cash constraints through a relaxation of corporation tax and an immediate reduction in National Insurance contributions."

Simon Collins, Head of Corporate Finance at KPMG, said:

"Rate cuts are welcome, but the real trigger to increase liquidity in the market will be the change in the inter-bank lending rate. Recent announcements have shown that Libor has been slow to reflect changes in the base rate; M&A activity is likely, therefore, to remain depressed in spite of the considerable cut in the short-term. It is a similar situation for companies refinancing. The reality for companies is that the tap remains blocked. We anticipate healthy as well as distressed businesses will struggle simply because they are liquidity starved."