Bank of England Governor Mark Carney has announced an emergency cut in interest rates to shore up the economy amid the coronavirus outbreak.
Policymakers reduced rates from 0.75% to 0.25%, taking borrowing costs back down to the lowest level in history.
It comes as the chancellor is expected to announce further measures to support growth and jobs in the Budget later.
Mark Carney, who is the leaving as governor after his term finishes this year, said policymakers had seen a “sharp fall in trading conditions”, including spending on non-essential goods.
“The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary,” he said.
He added that the Bank’s co-ordinated action on Budget day was designed to have “maximum impact”.
Mr Carney stressed that the economic damage caused by the coronavirus remained “unclear.” However, he suggested that the UK economy could “shrink in the coming months.”
He said early evidence from China suggested that the world’s second largest economy was on course to contract in the first quarter.
Other nations were experiencing a “similar shift”, he said.
“I would emphasise the direction is clear, though the orders of magnitude are still to be determined.”
The Bank’s last emergency rate cut was in October 2008. However, Mr Carney said the virus was unlikely to inflict the damage seen during the financial crisis.
“There is no reason for it to be as bad as 2008 if we act as we have, and if there is that targeted support,” he said.