Interest rates were slashed to their lowest level ever as the Bank of England threw another lifeline to the UK's ailing economy.
Borrowing costs fell by 0.5% to 1.5% - the lowest since the Bank was founded in 1694 - although some business leaders had wanted an even bigger cut as the prospect of a lengthy recession grows.
The move will immediately benefit more than four million households with tracker mortgages but spells more misery for savers hit by the Bank's drastic rate cuts since October.
The Bank's Monetary Policy Committee (MPC) warned UK output was set to nose-dive further in early 2009 as the world economy suffered an "unusually sharp and synchronised" downturn.
Despite rates falling to a record low, businesses and homeowners are struggling as banks rein in lending to shore up their finances, hitting house prices and consumer confidence. Experts said borrowing costs would fall further still to near zero in the coming months with the Bank forced to turn to other methods such as "quantitative easing" - boosting the money supply - to help the economy.
Ben Read, managing economist at the Centre for Economics and Business Research, said: "We expect .....continued below
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to see base rates at around 0.5% by the summer ... the logical next step would appear to be quantitative easing, which has not been ruled out by the Treasury or the Bank of England."Chancellor Alistair Darling denied that the Government was going to "print money" but said he was looking at a "range of measures" to support the economic and business.
Despite the gloom, the Bank gave a glimmer of hope as it said deep rate cuts, Government spending plans, sterling's tumble and lower inflation would give a "considerable stimulus" as the year progressed.
But manufacturers said the MPC should have gone further by cutting rates another full percentage point as the recession deepens at home and abroad. Steve Radley, chief economist at the EEF manufacturers' organisation, said: "Whilst the Bank has indicated it wanted to take a measured approach to cutting rates, this is too timid to deal with the current situation."
David Kern, chief economist at the British Chambers of Commerce (BCC), added: "We believe it is an inadequate reaction to the rapid worsening in economic circumstances ... The outlook is dire, and the MPC must act forcefully."
