A shock reduction in the cost of borrowing has been announced today.
The Bank of England has cut interest rates by one and half percentage points to three percent today, bringing them to their lowest level since 1955. A reduction in the base rate was widely expected, but the size of the cut has surprised markets and commentators.
Last month, the Bank's monetary policy committee moved to introduce an emergency reduction of 50 basis points, taking rates from five percent to 4.5 percent. Since then, the group has come under increasing pressure to make a larger cut in November.
In a statement, it pointed to tighter credit conditions, falling output, declines in consumer spending and a drop in residential and business investment as deciding factors in its decision to make the largest ever cut in rates since the Bank of England was made independent in 1997.
The Royal Institution of Chartered Surveyors was among those welcoming the move. Its chief economist Simon Rubinsohn said: "This reduction in the rates should now enable lenders to pass on a significant amount of the benefit to the high street."
The Association of Mortgage Intermediaries described the decision as a "phenomenal step", but insisted further intervention may be needed to bring inter-bank rates down in line with the base rate to ensure lenders can deliver savings for borrowers.
The European Central Bank have also implemented a half a percentage point cut in eurozone interest rates today, these now sit at 3.25%.
