Bank cuts interest rates by 1%

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In the wake of last month's shock 1.5% reduction, the Bank cut another 1% from its base rate. It warned that with demand now so weak there was a substantial risk that inflation will undershoot its 2% target.

The dramatic percentage point cut left the cost of borrowing at 2% - a level not seen since 1951 and equal to the all-time record low in the UK. The European Central Bank also cut the eurozone rate from 3.25% to 2.5%.

Britain's biggest mortgage lender Halifax and building society Nationwide confirmed they would pass on the Bank's cut to borrowers with base rate tracker deals.

Lloyds TSB, which trades as Cheltenham & Gloucester, and HSBC will pass on the full cut to borrowers with standard variable rate mortgages, although it remained unclear if all major lenders planned to follow their lead.

Prime Minister Gordon Brown urged banks to pass on the rate cut in full to homeowners and businesses.

Households with a typical £150,000 mortgage will see their monthly repayments reduced by £85 if lenders heed Mr Brown's call. Those with a £250,000 home loan would be £142 a month better off.

Industry leaders welcomed the Bank decision, but said it was critical that the full benefit was realised by consumers and businesses. The cut offered hope that retailers will see a much-needed spending boost in the run-up to Christmas.

Following the announcement, Chancellor Alistair Darling said he was confident the UK would "get through" the recession.

In a speech in Edinburgh he said: "Despite the pressures we face, I remain confident that together we will get through this. With interest rates falling, significant support from Government, and strengthened banks, we will get through this sooner and in better shape."