London  - The Bank of England (BoE) Thursday applied the twin tools of interest rate cuts and a boost in the money supply to revive the recession-hit economy.

The bank's Monetary Policy Committee (MPC) cut the key lending rate by 50 basis points to 0.5 per cent and injected an initial 75 billion pounds (105 billion dollars) into the economy through so- called quantitative easing.

Alistair Darling, the Chancellor of the Exchequer, said the injection of liquidity was "absolutely essential to get the economy moving."

He predicted that - "in these extraordinary times" - other countries around the world, including the US, would follow the British example to make sure there was enough money in the economy.

Under the process of quantitative easing, so far untried in Britain, the BoE will launch a programme of asset purchases - such as government bonds and corporate assets - financed by the issuance of central bank reserves.

With interest rates now close to zero, the BoE had itself admitted that it was running out of monetary tools to help revive the economy in the midst of a deepening recession.

"World activity continued to weaken, reflecting both depressed confidence and the persistent problems in international credit markets," the Bank said in a statement Thursday.

In Britain, the deterioration had been marked by lower consumer spending, a continuing sharp fall in output, rising unemployment and tight credit conditions.

The situation had led the bank to take measures that went beyond a cut in interest rates, it added.

"Accordingly, the committee also resolved to undertake further monetary actions, with the aim of boosting the supply of money and credit," the statement said.

The bank would monitor the effectiveness of its purchase programme and adjust "the speed and scale of purchases as appropriate."

It is widely expected that the BoE will eventually increase the amount of money it will "create" to 150 billion pounds, in accordance with government approval.

Analysts welcomed the bank's money supply move, while admitting that it constituted a "leap in the dark."

"Credit starvation is the biggest problem facing the UK economy and increasing supply of central bank money via purchases of government securities should help loosen these restrictions and boost the supply of money and credit," said Hetal Mehta of Ernst & Young ITEM Club.

Both the main opposition parties, the Conservatives and the Liberals, said the boost of money supply was a "last resort" after previous efforts to stimulate the economy through rate cuts and the temporary cut in Value-Added Tax had failed.

"Directly increasing the amount of money into the economy is now the only clear option," said the Liberals finance spokesman, Vince Cable.

But he warned that the kind of "radical action" taken by the bank with government support could "quickly turn deflation into high inflation."

The renewed cut in interest rates was condemned as a "kick in the teeth" for savers by the Building Societies Association, while the Council of Mortgage Lenders said it would unfairly hurt prospective mortgage borrowers. (dpa)