Bank of England Governor Mervyn King said on Tuesday that Britain's economy is probably entering its first recession in 16 years.
In a speech in Leeds, Mr King said the outlook has not worsened as rapidly as it has in the past month for a very long time.
He said the financial crisis had decisively raised the downside risks to inflation, which was why the bank had cut interest rates by 50 basis points this month in tandem with other central banks.
Mr King said the failure of Lehman Brothers bank on 15 September triggered an "extraordinary, almost unimaginable, sequence of events" which ended with last week's recapitalisation of the banking system.
According to a copy of his speech provided by the Bank of England, Mr King said: "Not since the beginning of World War I has our banking system been so close to collapse."
"We are far from the end of the road back to stability, but the plan to recapitalise our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner."
Most analysts expect the Bank of England to cut interest rates again in November.
The rate was reduced on 8 October from 5% to 4.5% in tandem with cuts by other central banks.
Figures due on Friday are expected to show the British economy shrinking for the first time since the early 1990s in the third quarter.