UK interest rates slashed to 3%

Last month it cut rates from 5% to 4.5% in an emergency move co-ordinated with other central banks.

There had been widespread calls from industry for a major cut as the country begins to face up to the prospect of a deep recession.

It is the most dramatic cut since a two percentage point reduction in 1981.

'Bigger than expected'

The cut comes after a raft of weak economic data recently.

It is the first time the Bank has cut rates by more than half a percentage point since gaining its independence in 1997.

BBC economics editor Hugh Pym said: "The Bank of England is using terms like 'very marked deterioration in the outlook' and 'severe contraction'.

"It is clearly very concerned about the possibility of a prolonged recession in the UK.

"The risks of high inflation have now evaporated, and because the bank is worried that inflation will now fall well below its target, it has felt the need to come up with this cut, which is much bigger than expected."

Following the announcement the FTSE stock market gained more than 100 points, to stand down 86 points, or 1.90%, at 4444.67 by 1245 in London.

'The right call'

The move has been broadly welcomed by business bodies and trade unions.

Richard Lambert, CBI director-general, said: "This is a bold and welcome move by the Monetary Policy Committee, and achieves what the CBI had been calling for."

He added: "This cut... should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers."

The TUC's head of economics Adam Lent said the move was "the right call".

"It shows the Bank now understands that the problem is recession not inflation."

Meanwhile, the Institute of Directors said interest rates could touch record lows of 2% or less by this time next year.

"The sooner we get interest rates down the less is the risk of a long and deep recession," said IoD chief economist Graeme Leach.

Obama assembles White House team

Barack Obama has started forming his administration by asking Rahm Emanuel, a former adviser to President Clinton, to be his chief-of-staff.

US President-elect Obama is next expected to appoint a treasury secretary to tackle the country's economic crisis.

He has until his inauguration on 20 January to select his senior officials.

Mr Obama was elected the first black US president on Tuesday with a resounding win over Republican rival John McCain.

Mr Obama's transition team is to be run by John Podesta, a former chief-of-staff to President Bill Clinton; Pete Rouse, who was Mr Obama's Senate chief-of-staff; and close friend Valerie Jarrett.

No briefings or announcements are expected on Thursday, but Mr Obama's staff said that he would address the media by the end of the week.

Bomb hits Pakistan tribal elders

A bomb has killed at least nine people and wounded nearly 40 at a gathering of tribal elders in the Pakistani tribal area of Bajaur, hospital staff say.

The bomb went off when the tribal elders were gathering to draw up a plan to drive militants out of their area as part of a government anti-Taleban plan.

Bajaur is a crucial hub for insurgents, with access routes to Afghanistan and the rest of Pakistan.

Hospital staff say they expect the number of casualties to increase.

Officials say that the bomb - detonated by remote control - targeted members of the Salarzai tribe as they were discussing ways to evict the Taleban from their area. They say that a senior tribal elder, Sazlal Karim, was among the dead.