Updated from 7:23 a.m. EST

The Bank of England cut its lending rate one-and-a-half percentage points to 3% from 4.5% Thursday, a reduction that was much greater than forecasts, and the European Central Bank followed suit lowering its benchmark rate by half a percentage point.

The European Central Bank cut its main lending rate to 3.25% from 3.75%.

Most analysts expected the BOE to slash rates by half a percentage point as Great Britain looks poised to enter a recession and as inflation has been falling.

"The past two months have seen a substantial downward shift in the prospects for inflation in the United Kingdom," the BOE said in a statement Thursday. "There has been a very marked deterioration in the outlook for economic activity at home and abroad. Moreover, commodity prices have fallen sharply."

The BOE said since mid-September the global banking system has "experienced its most serious disruption for almost a century. While the measures taken on bank capital, funding and liquidity in several countries, including our own, have begun to ease the situation, the availability of credit to households and businesses is likely to remain restricted for some time. As a consequence, money and credit conditions have tightened sharply."

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