BoE slashes rates and creates £75bn

Official borrowing costs have now fallen for six months in a row but the Bank's Monetary Policy Committee believes rate cuts alone will not be enough.

Policymakers have now moved into uncharted territory with the launch of "quantitative easing" (QE) - effectively printing money - to boost the money supply as banks are still reluctant to lend.

Meanwhile, most of the four million borrowers with tracker mortgages pegged to official rates will see repayments fall following the latest drop in the Bank's rate.

Lloyds TSB, Nationwide, Halifax, and Skipton Building Society are all passing on the cut in full to people on standard variable rates - although many other lenders are unlikely to follow suit in order to protect the interests of savers.

Under QE, the Bank will create £75 billion in new money to inject into the economy over the next three months, with a further £75 billion available if necessary.

Bank Governor Mervyn King has told the Chancellor there are "merits to stimulating the economy through a variety of different channels", but he has admitted he does not know how long the huge stimulus will take to have an impact.

"Nothing in life is ever certain. Changing interest rates is not certain. These measures, we think, will work in the long run. I can't be sure how long it will take," he said.

QE will only be used by the Bank to the extent necessary to hit its 2% inflation target. Official inflation is currently well above target at 3%, but is set to plunge rapidly in 2009 and the Bank hopes QE will ward off a prolonged slide into deflation.

Shadow chancellor George Osborne said the Bank's move is "a leap in the dark", while Liberal Democrat Treasury spokesman Vince Cable said increasing the amount of money flowing into the economy is now the "only clear option".