The Bank of England has cut interest rates in the UK by one-and-a-half percentage points to 3%, its lowest since 1955, in a shock move.
Last month it cut rates from 5% to 4.5% in an emergency move co-ordinated with other central banks.
There had been widespread calls from industry for a major cut as the country begins to face up to the prospect of a deep recession.
It is the most dramatic cut since a two percentage point reduction in 1981.
'Bigger than expected'
The cut comes after a raft of weak economic data recently.
It 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."
Mortgage fears
There have been concerns that following a cut in the Bank of England's base rate, it would not be passed on to borrowers.
Output in the manufacturing sector has fallen for seven months in a row
Prime Minister Gordon Brown was asked about this problem in the House of Commons on Wednesday because Abbey had just raised its tracker mortgage rates for new customers.
"We want the banks and building societies to pass on the interest rate cuts to their mortgage holders," he said.
"What we've been trying to do over the last few weeks is get the liquidity into the system, recapitalise our banks and then get them to resume the lending that is necessary."
However Lloyds TSB has promised to pass on the rate cut in full to its variable rate mortgage customers.
The group, which also lends through Cheltenham & Gloucester says its standard variable rate, currently 6.5%, will never be more than 2% above Bank of England base rate.
Manufacturing decline
The Bank of England's interest rate move came after a series of figures released this week provided further evidence that the UK economy is sliding towards recession.
New figures from the Halifax showed house prices fell by another 2.2% in October, pushing the drop in house prices to 13.7% over the past year.
Activity in the service sector, the backbone of the UK economy, shrank in October for the sixth month in a row.
According to an index compiled by the Chartered Institute of Purchase and Supply output from services was at its lowest level since its poll began in 1996.
Also, the Office for National Statistics said that manufacturing output fell for a seventh month in September - the longest run of monthly declines since 1980.
Manufacturing output fell by 0.8% in September, much worse than analysts' expectations, making output 2.3% lower than a year earlier, the sharpest decline since May 2003.
Last month it cut rates from 5% to 4.5% in an emergency move co-ordinated with other central banks.
There had been widespread calls from industry for a major cut as the country begins to face up to the prospect of a deep recession.
It is the most dramatic cut since a two percentage point reduction in 1981.
'Bigger than expected'
The cut comes after a raft of weak economic data recently.
It 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."
Mortgage fears
There have been concerns that following a cut in the Bank of England's base rate, it would not be passed on to borrowers.
Output in the manufacturing sector has fallen for seven months in a row
Prime Minister Gordon Brown was asked about this problem in the House of Commons on Wednesday because Abbey had just raised its tracker mortgage rates for new customers.
"We want the banks and building societies to pass on the interest rate cuts to their mortgage holders," he said.
"What we've been trying to do over the last few weeks is get the liquidity into the system, recapitalise our banks and then get them to resume the lending that is necessary."
However Lloyds TSB has promised to pass on the rate cut in full to its variable rate mortgage customers.
The group, which also lends through Cheltenham & Gloucester says its standard variable rate, currently 6.5%, will never be more than 2% above Bank of England base rate.
Manufacturing decline
The Bank of England's interest rate move came after a series of figures released this week provided further evidence that the UK economy is sliding towards recession.
New figures from the Halifax showed house prices fell by another 2.2% in October, pushing the drop in house prices to 13.7% over the past year.
Activity in the service sector, the backbone of the UK economy, shrank in October for the sixth month in a row.
According to an index compiled by the Chartered Institute of Purchase and Supply output from services was at its lowest level since its poll began in 1996.
Also, the Office for National Statistics said that manufacturing output fell for a seventh month in September - the longest run of monthly declines since 1980.
Manufacturing output fell by 0.8% in September, much worse than analysts' expectations, making output 2.3% lower than a year earlier, the sharpest decline since May 2003.
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