Bank of England makes shock 150 basis point rate cut

* BoE cuts rates by 1.5 percentage points to 3 percent

* UK rates now lowest since 1950s, biggest cut since 1981

* Government urges banks to cut rates, Lloyds TSB acts

* Two-year bond yields hit record low, shares down 5 pct

* Reuters poll: BoE to cut rates to 2.5 pct next month

(Adds result of Reuters poll paragraph 8)

By Sumeet Desai and Fiona Shaikh

LONDON (Reuters) - The Bank of England made a shock 1.5 percentage point cut in interest rates on Thursday to just 3 percent, their lowest level in more than half a century, as it seeks to prevent Britain from sliding into a deep recession.

That was the biggest official interest rate cut since the 1981 slump and completely wrong-footed analysts who had mostly been predicting a half-point reduction. Not one in 62 polled by Reuters had expected such a massive move.

The BoE said the economic outlook had got a lot worse and drastic action was now needed. Economists said more rate cuts would still follow and it was possible Britain could soon have rates the same level as in the United States -- one percent.

"The MPC needs to keep cutting interest rates aggressively. I think that they will need to fall to 1 percent," said Roger Bootle, an economic adviser for accountancy firm Deloitte.

"Rates have never before been this low, but extraordinary times require extraordinary action. And it is not impossible to imagine circumstances under which rates end up having to go lower, perhaps even to zero as they have done in Japan."

Two-year bond yields GB2YT=RR fell to a record low below 2.5 percent. The pound GBP=, already down about 20 percent this year, fell but then rose after the rate verdict, as investors bet the economy's growth prospects had improved.

The British economy shrank for the first time in 16 years in the third quarter and most economists expect further contraction through next year and only a small recovery in 2010, when Prime Minister Gordon Brown must call an election.

Economists polled by Reuters after the decision predict the BoE will cut rates by half a percentage point next month and again in the first three months of next year, taking rates to 2 percent by March.

COORDINATED CUTS?