Bank of England governor Mervyn King has said this financial crisis could be the worst the UK has ever seen.
His comments came after the Bank authorised the injection of a further £75bn into the economy through quantitative easing (QE).
Explaining the move Sir Mervyn told Sky News: "This is the most serious financial crisis we've seen at least since the 1930s, if not ever."
The Bank has already pumped £200bn into the economy.
It has done this by buying assets such as government bonds, in an attempt to boost lending by commercial banks.
Sir Mervyn said: "We're having to deal with very unusual circumstances and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy."
The Bank's Monetary Policy Committee has been split for months over whether the UK needs a boost to the economy through QE, an increase in interest rates to stave off inflation - which at 4.5% is well over double its target - or to leave things as they are.
Only one member, Adam Posen, has consistently pushed for more QE.
Sir Mervyn said the economic landscape was unfamiliar and the world had changed in the past three months and so had the policy response necessary.
He said the amount of money in the economy was not growing quickly enough.
Sir Mervyn also said he could not rule out a further bout of QE.
On Wednesday, data showed the UK economy grew by 0.1% between April and June, which was less than previously thought.
"The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term.
The CBI and the British Chambers of Commerce (BCC) business groups welcomed the Bank's move to expand the QE programme to £275bn, but said that on its own, its impact would be limited.
"This measure will help support confidence, but we need to recognise that its impact on near term growth prospects is likely to be relatively modest," said Ian McCafferty, the CBI's chief economic adviser.
"Only once the turmoil in the eurozone is resolved will confidence be fully restored."
David Kern, chief economist at the BCC, said: "Higher QE on its own is not enough and we urge the MPC [Monetary Policy Committee] to look at other radical methods.
"There is a strong case for the MPC to help boost bank lending to businesses by immediately raising its purchases of private sector assets."
However, the National Association of Pension Funds (NAPF) is calling for an urgent meeting with the pensions regulator to discuss ways of protecting UK pension funds from the negative effects of QE.
QE tends to push down long-term bond yields, therefore reducing the return on the investments made by pension schemes.
"Quantitative easing makes it more expensive for employers to provide pensions and will weaken the funding of schemes as their deficits increase," said Joanne Segars, chief executive of the NAPF.Mervyn King wrote to the chancellor earlier on Thursday, setting out the MPC's case for expanding the asset purchasing programme.
In his letter of response, in which he authorised the move, Chancellor George Osborne said: "I agree that an increase in the ceiling would provide the MPC with scope to vary the stance of monetary policy to meet the inflation target."
In his speech to the Conservative Party conference earlier in the week, Mr Osborne said that the Treasury would look into "credit easing" - a way to underwrite loans to small businesses who are struggling to get credit now.
He confirmed this in his letter to Mr King: "Given evidence of continued impairment in the flow of credit to some parts of the real economy, notably small and medium-sized businesses, the Treasury is exploring further policy actions. Such interventions should complement the MPC's asset purchases."