Central banks across Europe slashed interest rates Thursday, expanding a campaign to head off a deep recession and following in the path their U.S. counterparts have undertaken for more than a year.

The central banks, deeply worried about inflation and confident that U.S. economic distress wouldn't damage Europe too badly, resisted cutting interest rates for most of this year. In the past two months, however, the outlook for economies there and globally has worsened significantly. Just Thursday, the International Monetary Fund cut its projection of 2009 world economic growth to a level that would indicate a global recession.

The Bank of England, citing "a very marked deterioration in the outlook for economic activity at home and abroad," on Thursday cut the bank lending rate it controls to 3 percent, the lowest level since 1955. The 1.5 percentage point rate cut was the largest reduction since 1981. Shadow Chancellor, George Osborne said: "This is a shot in the arm for the economy, but it shows how sick the patient is.

"As we have argued, reducing interest rates is the best way to fight the recession and so we welcome the Bank of England's decision. But the size of the cut means that the Bank recognises the UK economy is in serious trouble."

Shortly after the move in London, the European Central Bank slashed rates a half-point, to 3.25 percent, for the 15 nations that use the euro as their currency. The Swiss National Bank cut interest rates by a half-point to 2 percent and the Czech Republic's central bank cut its interest rate by three-quarters of a point to 2.75 percent.

Simon Ward, economist at fund managers New Star, said: "Drastic action was warranted but there is a risk of exhausting interest rate ammunition too soon. The cut will have limited impact unless the financial system starts to function normally. The MPC is hoping to shock money and credit markets back to life but the Fed's rate-slashing failed to avert a US credit crunch. UK policy-makers may need to consider additional steps to ensure the flow of credit to firms and households, such as an expansion of the small firms loan guarantee scheme."

Jean-Claude Trichet, president of the European Central Bank, said he did not "exclude that we will decrease rates again."

"The intensification and broadening of the financial turmoil is likely to dampen global and euro-area demand for a rather protracted period," he said.

The moves in Europe were followed Friday by South Korea's central bank, which lowered its benchmark rate by a quarter-point to 4 percent, its third rate cut in less than a month, Associated Press reported.

Such a significant cut will help restore liquidity and shore up the credit market. Banks should be encouraged to pass most of this cut onto consumers, improving housing affordability and allowing first time buyers to re-enter the market.

Thursday's moves followed an emergency rate cut coordinated with the Federal Reserve just three weeks ago. The Fed has slashed the short-term interest rate it controls to 1 percent, from 5.25 percent in September 2007.

"Previous MPC decisions have exasperated house price inflation by keeping rates too low in the past. Mortgage availability did not improve significantly after the last 0.5% reduction, so the housing market remained stagnant and needed this injection."

All the central banks are hoping that by making it cheaper for businesses and consumers to borrow money, they can encourage economic activity and ease some of the risk of a long and crippling downturn in their respective nations.

Their efforts are being hindered, though, by dysfunction in the world financial system. With banks unwilling to lend to each other or to their clients, interest rate cuts are not being passed through to ordinary borrowers as they normally would, limiting their effectiveness.