The Bank of England cut interest rates to World War II levels and the European Central Bank made the deepest-ever rate cut in its ten-year history, as Europe's two main central banks moved to combat a deepening economic downturn and try to loosen credit markets that remain stalled despite already massive government intervention.

The Bank of England cut its key interest rate by a full percentage point, from 3 percent to 2 percent. The bank kept its main rate at 2 percent from 1939 until 1951, and has never cut below that in its more than three hundred year history. That reduction follows an even larger 1.5 percentage point cut that the U.K.'s central bank made last month.

In a news release, the bank' s monetary policy committee said that the aggressive interest rate cuts were needed because steps taken so far have not reopened credit markets or done enough to support economic growth.


"Business surveys have weakened further and suggest that the downturn has gathered pace," the statement said. "Despite the actions taken to raise bank capital, ease funding and improve liquidity, conditions in money and credit markets remain extremely difficult." It added that "it was unlikely that a normal volume of lending would be restored without further measures."

The announcement in London was followed by similar action in Brussels, where the European Central Bank said it would cut its main rate by a steeper than expected three-quarters of a percentage point, to 2.5 percent. The ECB serves as the central bank for the 15 nations that use the euro as a common currency.

In contrast to other European nations, the United Kingdom has acted faster and more aggressively in responding to the global financial crisis, engineering takeovers of troubled banks and financial institutions and instituting programs to try to dampen the effect of rising mortgage defaults.

The BOE has also been faster to follow the U.S. Federal Reserve in trimming interest rates to a minimal level in an effort to encourage borrowing and investment. The Fed's main interest rate now stands at 1 percent following the most recent reduction.

But the ECB today took a step towards catching up. Over its ten-year history the bank has never cut by more than half a percentage point, preferring to go slowly to gauge the impact of its actions and ensure that inflation does not take hold.

However economic data have shown a steadily eroding European economy. Recent reports have indicated that the region's economy is contracting overall, and several individual countries -- most notably Germany, with the largest economy in Europe -- are in recession.

"Global and euro-area demand are likely to be dampened for a protracted period of time," Bank president Jean Claude Trichet said at a news conference in Brussels. Since September "we have had a big change in the overall attitude," Trichet said. "There are a number of signs indicating that things have hardened."

Trichet said today that the bank's focus on price stability would not change, nor would he indicate whether further cuts were likely in the future.

But he noted that the bank has now trimmed rates by 1.75 percentage points in just over two months -- and that it may take time to measure what effect that is having.

"We have to take that into account and we have to observe what is going on now," Trichet said.

Other national banks have also been aggressive in their rate cutting. The Riksbank in Sweden today reduced its key rate by nearly half, cutting it from 3.75 percent to 2 percent.