The Bank of England unleashed £75 billion of emergency support today after admitting "tensions in the world economy" threatened the UK's recovery.
Its Monetary Policy Committee (MPC) voted to boost the Bank's quantitative easing (QE) programme - effectively printing more cash - from £200 billion to £275 billion and hold interest rates at 0.5%.
The move, dubbed QE2, is the first change to QE since November 2009 and is the clearest signal yet that the Bank thinks Britain is on the brink of a double-dip recession.
Business leaders welcomed the announcement after figures revealed Britain suffered a deeper recession and is recovering more slowly than first thought.
However, the decision raised fears of a surge in the already-high rate of inflation, which would erode savings and pension funds.
Elsewhere, the European Central Bank (ECB) offered new emergency loans to banks to help steady a eurozone financial system shaken by the region's deepening debt crisis.
Alan Clarke, UK economist at Scotia Capital, said: "Once again the BoE has made use of its secret weapon - shock and awe. Pretty much everyone expected QE to restart at some point - but it was only a minority view that it would start this soon, or in excess of £50 billion."
A report by the Bank into the effect of QE on the economy previously found the stimulus measure provided a "significant" benefit to growth and helped GDP increase by around 1.5% and 2%. This was equivalent to dropping interest rates by between 1.5% and 3%.
The MPC said its members made the decision to boost QE over the next four months because the slack in the UK economy will likely be "greater and more persistent than previously expected".
The Bank said the pace of growth in the UK's main export markets had slowed while the eurozone debt crisis and its impact on financial markets were dragging on Britain's recovery.
The committee also warned the squeeze on household incomes and the Chancellor's austerity measures are likely to continue to restrict spending while ongoing strains on the banks will limit credit supply.
The deterioration in the economic outlook means it is more likely that inflation - which hit 4.5% in August - will undershoot the 2% target in the medium term, the Bank added.
David Kern, chief economist at the British Chambers of Commerce, welcomed the move but said increasing QE was not enough to support businesses.
"In the face of the risks facing Britain's recovery, it is important to make every effort to underpin business confidence and avoid a setback," he said.
"However, higher QE on its own is not enough, and we urge the MPC to look at other radical methods."
John Walker, national chairman of the Federation of Small Businesses, said it was vital the cash went to businesses and was not swallowed up by the banks.
He said: "It is important that in an attempt to boost short-term demand that small businesses can directly benefit from this cash injection and that the banks use it to decrease the cost of credit and to increase the availability of lending."
QE can fuel inflation which could spell more gloom for savers who have seen their pots chipped away by the high cost of living and low interest rates.
In addition, QE increases the cost of gilts - government-backed bonds which fund annuities, the level of pension payments - and by keeping interest rates down, reduces the overall return on pensions.
Joanne Segars, chief executive at the National Association of Pension Funds (NAPF), warned increased QE would have "adverse consequences" for pension funds in the short-term.
She said: "Quantitative easing makes it more expensive for employers to provide pensions, and will weaken the funding of schemes as their deficits increase. All this will put additional pressure on employers at a time when they are facing a bleak economic situation."
Dr Ros Altmann, director general of over-50s lobby group Saga, said further QE was "like launching the Titanic" due to its potential impact on savings.
She said: "The last round of QE was supposed to stimulate UK growth and fight deflation, but instead it boosted prices, bank bonuses and borrowers' balance sheets. It actually created asset bubbles and inflation, not sustainable growth."
Elsewhere, fears are increasing over the future of the eurozone as Greece fights to stave off a debt default, Italy's public finances come under pressure and major European banks falter.
The ECB held interest rates - some had expected them to be cut - but instead offered an unlimited amount of 12-month and 13-month loans to banks. The measures are designed to keep the financial system working properly.