Zero interest rates are a possibility and further capital injections may be required in the banking sector, Bank of England deputy governor Charles Bean said.

"We have to recognise that it's a possibility," Mr Bean told the Financial Times newspaper in an interview yesterday.

"Of course, interest rates, the bank rate, is still at two per cent, so we still have some margin to go yet, but of course we may find ourselves getting them all the way to near zero."

The Bank has slashed interest rates by three percentage points since October and markets expect further cuts as slides into its first recession since the early 1990s. Mr Bean said the outlook for the economy was getting worse.

The US Federal Reserve this week lowered interest rates to between zero and 0.25 per cent.

"It's a moot question whether you actually want to go all the way to zero, or stop at a small positive number; it really depends on how the money markets operate," he said.

"And the problem with going to zero is that effectively you don't leave the banks very much incentive to manage their own liquidity."

Policymakers have warned that rate cuts may not be having as much of an effect on the economy as they would do in more normal circumstances because of the impact of the credit crunch, raising speculation that more unusual measures may be required.

He said any quantitative easing - action to increase money supply through the purchase of assets - the Bank might undertake would need to be coordinated with the Treasury and the Debt Management Office which issues government bonds.