LONDON (Reuters) – The Bank of England slashed interest rates to a record low on Thursday to help Britain out of recession, but the ECB kept its main rate on hold despite dire German and Spanish data confirming a sharp downturn.

Explaining its decision the Bank said "the global economy is in the throes of a severe and synchronised downturn". It said the UK was facing a similar rate of decline in the early part of this year as it faced in the fourth quarter of 2008, when the economy shrank by 1.5pc.

As expected, the British central bank cut its base rate by 50 basis points to 1.0 percent, the lowest since its creation in 1694 and the latest in a series of aggressive cuts designed to stimulate the flagging economy.

It was the fifth cut in as many months, but economists and business groups said it would have little impact on the recession and called on the Bank to start using more unconventional tools of monetary

The reduction will help some borrowers, including those on tracker mortgages, unless their lender has imposed a lower limit on how much rates can fall. However, it will make no difference to the majority of homeowners who are on fixed rate mortgages. Banks have also been reluctant to pass on recent cuts to borrowers on their Standard Variable Rate. Nor will it address the lack of credit availability which is at the centre of the financial crisis.

The European Central Bank, also under pressure to act to boost flagging activity in the 16-nation bloc, left its key rate untouched at 2 percent after four months of cuts.

In Britain, year-on-year car sales crashed by almost a third to their worst performance in January since 1974, fuelling angst about an economy the International Monetary Fund says will shrink by 2.8 this year, the most of any industrialized economy.

The downturn has hit major exporters like Germany, where manufacturing orders posted their biggest fall since 1990, tumbling 6.9 percent in December month-on-month. That was far beyond the 2.5 percent consensus forecast and the fourth steep drop in succession.

The outlook for the euro zone's biggest economy remained "extremely subdued" Germany's Economy Ministry said.Adding to the gloom, Spanish industrial output in December fell 19.6 percent year-on-year, its sharpest slowdown on record. Business lobbies blamed banks for Spain's severe recession and demanded state intervention if banks fail to boost lending.

"Few borrowers are complaining about how much they have to pay for funding, but they are worried about its availability. Further measures are still needed to improve banks' capital positions so that they are in a position to increase the availability of credit in the economy," said Mr Dolphin.

Despite the half point cut the pound strengthened against both the dollar and the euro yesterday, largely because it had been widely expected. Sterling was up by about a cent at $1.4628 and €1.1393 respectively.

Meanwhile the International Monetary Fund warned the global economic crisis would worsen unless governments removed banks' toxic assets.