Bank cuts rate to record low of 1%

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The Bank reduced borrowing costs to 1% - the lowest in its 315-year history - in its first meeting since the UK's slide into recession was confirmed.

While four million homeowners will see lower mortgage rates as a result of the move, savers - who vastly outnumber borrowers - face yet another knock to their already-dwindling returns.

The Building Societies Association (BSA), which had campaigned for unchanged rates, said the cut was an "assault on savers" who have now seen their interest payments drop by 83% since July 2007. Adrian Coles, BSA director general, said: "This decision means that people are less likely to save and the flow of funds into the mortgage market will be further disrupted."

Joe Harris, the National Pensioners Convention's general secretary, said: "For the five million pensioners with savings, this cut in interest rates will come as a further attack on their living standards."

The European Central Bank (ECB) meanwhile announced eurozone interest rates would remain at 2%, pushing the pound up to a two-month high of 1.14 euros.

Mark O'Sullivan, trading director at Currencies Direct, said the boost reflected the fact that the pound has already "hit bottom" and investors' dismay at the ECB's reluctance to pull rates down further.

The Monetary Policy Committee (MPC) has reduced interest rates dramatically - from 5% last October - as it tries to offer relief to borrowers and businesses amid a storm of bad news for the UK economy.

Since the last decision, it has emerged that the UK economy shrank by 1.5% in the fourth quarter of last year - the biggest contraction in almost 30 years. Unemployment has soared, with thousands of jobs being shed across the UK each week. January's figures showed jobless totals jumped by 131,000 in the three months to November to 1.92 million, the highest figure for more than a decade.

On top of this, the International Monetary Fund (IMF) has predicted that Britain will suffer more than any other advanced nation in the worst global recession since the Second World War.