Should anybody have doubted the seriousness of the economic situation in which Britain finds itself, events in the past few days should have removed those doubts. A drastic cut in interest rates by the Bank of England was followed by an arm-twisting exercise by a government desperate to see it passed on to homeowners and small firms.

The Bank’s move takes us into unfamiliar territory. Three-quarters of the population were not born the last time the Bank rate was 3%. The last time interest rates were cut by a bigger amount was 1981, in the depths of the deepest recession since 1945. The Bank rate has not been slashed by a third since September 1939, the outbreak of the second world war, and before that in August 1914, the start of the great war.

The cut would have been in vain had it been ignored by Britain’s lenders. The banks, whose follies were mainly responsible for getting us into this mess, did themselves no favours with their leaden-footed response to the rate cut. Now they are muttering “this far and no further” and saying further reductions may not be passed on to customers.

We shall see about that and ministers will be right to keep up the pressure – particularly now taxpayers have directly or indirectly propped up the banks to the tune of hundreds of billions of pounds. Even so, there may be a limit to how much can be done. In America mortgage rates are above 5% even though the interest rate set by its central bank, the Federal Reserve, is just 1%. Even when lower rates percolate through to the economy, the problem remains the availability of funds. The credit crunch still has a lot of bite.

Lower interest rates alone may not be enough. Talk of Alistair Darling taking steps to boost the economy by bringing forward public spending has been bolstered by expectations of imminent tax cuts. A government that a few months ago was under pressure because it had lost control of the public finances is now looking for recession-busting fiscal measures.

Barack Obama, whose pledge of tax cuts for US families helped him to victory, promises to make a stimulus package his first priority. The German government last week announced a one-year suspension of the tax on new cars and tax subsidies for home improvement. Australia, under Kevin Rudd, is giving families and pensioners a “bonus” payment for Christmas and helping first-time housebuyers.

There is thus plenty of international cover for a significant package in Britain’s pre-budget report later this month, despite the parlous state of the public finances. Hints from the prime minister point to an emphasis on helping “hard-working” families on low and middle incomes. What is important is that any attempted boost is not wasted. Gordon Brown’s instincts will be to plough more into his discredited tax credits or raise personal allowances to take the low-paid out of tax altogether. The former would be throwing good money after bad and the latter had little effect when it happened in September.

The Centre for Economics and Business Research argues for an eye-catching five-point cut in Vat, taking the rate from 17.5% to 12.5% for a period of two years. It makes a lot of sense, helping families up and down the social scale – a bigger proportion of the income of the lower paid goes on Vat – and providing small firms with a fillip. It would certainly be noticed, unlike fiddling with tax credits.

Whatever Mr Darling unveils, it should not be half-hearted. As the Bank demonstrated, dangerous times require bold measures.