Financial markets were braced for large interest rate cuts across Europe from Thursday as bad economic figures continued to flow from all leading economies.

In the UK, the consensus among economists shifted during the week to an expectation that the Bank of England would reduce its official rate another percentage point to 2 per cent, equal to its lowest rate since the Bank was founded in 1694. The overnight index swap market, one of the best guides to official interest rate expectations, has priced in a reduction of 1.5 percentage points.

In the eurozone, the equivalent European financial market has priced in a 0.75 percentage point reduction by the European Central Bank to 2.5 per cent today, a move that would be bigger than any it has made in its near 10-year existence. Although economists are a little more cautious, with inflation risks disappearing fast, they nevertheless believe a three-quarter percentage point reduction is a distinct possibility.

Influential voices are calling on central banks to be bold. Willem Buiter of the London School of Economics, a former member of the Bank of England's monetary policy committee and chief economist of the European Bank for Reconstruction and Development, says the recession in advanced economies is "going to be so deep and so prolonged" that zero per cent rates "will be reached even by the most anal-retentive gradualist central bank before the middle of 2009".