Mervyn King, governor of the Bank of England, has warned that further action may be necessary in order to pull the UK out of the recession.
The Bank of England is forecasting that the UK’s economy will fall sharply in the first half of this year.
The Bank also said that inflation would remain below its 2% target by the end of its two-year forecast period.
The Bank of England has already cut interest rates from 5% to 1% in the last five months in a bid to kick-start the economy and rates could be reduced even further.
King said: "Monetary Policy Committee can and will take action to return inflation to the target and so ensure that economic growth will again match its potential.”
He indicated that as well as interest rate cuts, the Bank was ready to use a wider group of policy measures to increase the money supply, including buying a new £50 billion facility to buy up distressed corporate assets. These measures include buying assets such as corporate and Government bonds.
He added that other central banks were taking similar actions and that the common approach would help see the world through the economic crisis.