If anybody was looking for proof that the banking crisis has worsened dangerously over the past four weeks, today's co-ordinated interest rates cuts from the world's central banks provide it.

A month ago, the Federal Reserve was seen as stuck at 2 per cent, the European Central Bank was still making noises about raising rates and speeches from members of the Bank of England's monetary policy committee suggested they were as worried about inflation as recession.

Now all three have cut interest rates by half a point, along with the Canadian, Swedish and Swiss central banks. Even China joined in, proof that even it is not immune from the global slowdown.

Economic historians will note that this was only the second time in 11 years of independence that the Bank has given us an "inter-meeting" cut - reducing rates outside its normal schedule of meetings. The first was in the wake of the September 11 2001 attacks on America.

Historians will also look back to this week as one of the big, pivotal moments for the economy. A recession is now built into everybody's calculations. The task of this week has been to prevent that turning into something much nastier and to keep the banking system from collapsing.

The rate cut has to be seen in that context, signalling to individuals and businesses that, along with action they probably do not fully understand about recapitalising the banks and providing them with liquidity, the authorities are doing something directly to help them.

Seen in their entirety, this morning's moves are bold and far-reaching. The Bank, while it has not abandoned its concerns about inflation, as its statement makes clear, has room to cut rates further as the economy slow and inflation comes down. A 3 per cent Bank rate, called for by Vince Cable as an emergency measure now, is certainly a strong possibility next year.

Will it work? Halifax, which had been raising mortgage rates, says it will pass the half-point cut on. Price is one thing, however, but quantity is more important. The aim of today's package, and of the co-ordinated global rate cuts, is to get the credit and money markets moving again and so restore the normal lending flows vital for the proper functioning of the economy.

Given the fragile nature of the markets, and the recent speed of events, nobody can be sure this will be the result of today's moves. But things look better than they did 24 hours ago. Whether they'll look as good in 24 or 48 hours remains to be seen.

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