The UK could be facing "the most serious financial crisis" ever seen, the governor of the Bank of England has warned after unveiling a surprise move to pump £75 billion into the ailing economy.
Sir Mervyn King's stark comments last night that the economic crisis could be worse than the Depression of the 1930s came after the Bank's Monetary Policy Committee (MPC) voted to boost its quantitative easing (QE) programme - effectively printing more cash - from £200 billion to £275 billion and hold interest rates at 0.5%.
The move, dubbed QE2, is the first change to QE since November 2009 and is the clearest signal yet that the Bank thinks Britain is on the brink of a double-dip recession.
Explaining the committee's reasoning Sir Mervyn said: "This is the most serious financial crisis we've seen at least since the 1930s, if not ever.
"We're having to deal with very unusual circumstances and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy."
In a letter to Sir Mervyn authorising the move, Chancellor George Osborne said QE was an "appropriate tool with which to address the deterioration in economic conditions".
He also said the Treasury was "exploring further policy options" which are likely to be unveiled in his autumn statement next month.
But shadow chancellor Ed Balls said: "With our economy stagnated since last autumn David Cameron and George Osborne are now betting on a bailout from the Bank of England.
"The Government's reckless policy of cutting spending and raising taxes too far and too fast is demonstrably not working. But rather than change course the Government has spent the last week urging the Bank of England to step in and essentially print more money.
"The Bank of England has been left with no choice but to step in and try to offset the contractionary effects of George Osborne's Budget plans."