Interest rates have been slashed and billions pumped into banks in a "bold" bid to stave off recession.

The Bank of England's Monetary Policy Committee cut interest rates by 0.5 per cent to 4.5 per cent as the International Monetary Fund (IMF) issued a fresh warning that Britain is on the brink of recession.

The IMF predicted the UK economy will shrink by 0.1 per cent next year as growth across the developed world slows to almost zero.

Unemployment is expected to rise from 5.4 per cent to 6.0 per cent, while public finances were said to be "considerably weaker" than in previous slowdowns.

But the IMF said it expects Britain to bounce back in 2010 with a 2.2 per cent growth rate, and IMF chief economist Olivier Blanchard said the risk of global depression will be "nearly nil" if world finance leaders act quickly.

In what Prime Minister Gordon Brown called "co-ordinated action", the US Federal Reserve and the European Central Bank also trimmed their rates by half a point. Central banks in Canada, Sweden and Switzerland also made adjustments.

Britain's interest rate cut will mean a saving of £47 a month on a £150,000 mortgage if the reduction is passed on in full by lenders.

So far HBOS, Barclays, Lloyds TSB, Cheltenham and Gloucester, and Chesham Building Society have said they will pass on the saving to customers in full on November 1.

The Government has also announced a bail-out package for banks and building societies that will see taxpayers' money used to buy stakes in major banks in an attempt to halt financial meltdown.

In return for the cash injection banks must cap executive pay and shareholder dividends and commit to supporting lending to homebuyers and small businesses.

Eight banks and building societies including RBS, Barclays, HBOS, Lloyds TSB and Nationwide have signed up to an initial £25 billion scheme, and the Government said it will make at least another £25 billion available for other institutions.

The Bank of England is also extending the existing £50 billion Special Liquidity Scheme to £200 billion, and a further £250 billion is being pumped in under a debt guarantee scheme.

Chancellor Alistair Darling insisted the taxpayer will not lose out, saying: "I'm very clear that in return for all this, the taxpayer has got to see some upside."

Conservative leader David Cameron said: "Taxpayers will rightly be infuriated if they see their hard-earned money going on bonuses that are rewards for failure."

Prime Minister Gordon Brown said: "Extraordinary times call for the bold and far-reaching solutions that the Treasury has announced."

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