BRUSSELS, Dec 4: Major European central banks took unprecedented action on Thursday to ward off spreading recessions, slashing their benchmark lending rates to boost businesses and consumers.

The European Central Bank cut the cost of borrowing in the 15-nation eurozone by a record 0.75 percentage points to 2.50 per cent as the eurozone faced its first recession.

The Bank of England returned British interest rates to levels last seen in World War II and its immediate aftermath with a full point reduction to 2.0 per cent. Interest rates last stood at this level in 1951.

ECB president Jean-Claude Trichet acknowledged here that his bank expected the eurozone economy to shrink by 0.5 per cent next year, with the contraction possibly reaching 1.0 per cent.

“On the basis of our current analysis and assessment we see global economic weakness and very sluggish domestic demand persisting in the next few quarters,” he told media after the decision was announced in Frankfurt.

For the ECB, it was also an unprecedented third rate cut in two months, following a coordinated cut with other central banks on October 8 and another reduction in early November.

“The ECB’s 75 basis points interest rate cut comes as a pleasant surprise after recent hints from governing council members that a 50 basis point cut was more likely,” said Jennifer McKeown at consultants Capital Economics.

In Stockholm, the Swedish central bank set the tone early in the day by nearly halving its key rate with a cut of 1.75 percentage points to 2.0 per cent to “dampen the fall in production and employment” due to the global financial crisis.

The Danish central bank also cut its key interest rate by 0.75 percentage points to 4.25 per cent in line with the ECB move.

Repeated and sharp central bank cuts have nonetheless failed so far to unfreeze the interbank lending crucial to business that ground to a halt after the US market for high-risk or subprime mortgages collapsed in mid-2007.

Trichet called attention to the bank’s readiness to cut rates substantially, and pressed markets to do their part. “We have decreased rates by 175 basis points (1.75 percentage points) over a very, very short period of time,” Trichet noted.—AFP