Interest rates hit 53-year low

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The shock 1.5% cut by the Bank's Monetary Policy Committee (MPC) is the biggest single move since March 1981 and brings rates to levels not seen since 1955.

Experts predicted they could reach an all-time low of 1.5% by mid-2009 as the Bank acts to stave off the worst impact of an economic slump.

Borrowers on standard variable rate mortgages will see average monthly payments on a £150,000 mortgage fall by around £138 - if the cut is passed on in full. But lenders shaken by banking turmoil have been reluctant to pass on cuts in full as interbank lending rates - key in pricing fixed-rate deals - remain high.

Chief Secretary to the Treasury Yvette Cooper said ministers expect banks to pass on the cuts as rapidly as possible after shoring up the finances of several major players with taxpayers' cash. "The Government has stepped in to make the banking system safe, to support the banks. It is right now that the banks do their bit to support everybody else," she said.

But shadow chancellor George Osborne said: "This is a shot in the arm for the economy, but it shows how sick the patient is."

The Bank of England made the move because of the "substantial risk" of undershooting its 2% inflation target as a sharp recession looms in the wake of September's banking turmoil. "There has been a very marked deterioration in the outlook for economic activity at home and abroad," it said.

Asked whether banks should pass the rate cut on to customers, Prime Minister Gordon Brown's spokesman said: "We are not going to make specific comments about the specific pricing of individual mortgage products in every single bank. But we are clear that consumers should see the benefit of reduced interest rates.

"The Prime Minister supports the view that banks should pass on the cut. I think the public expects that when there is an interest rate cut of this magnitude, then they should see the benefit.

The deep cuts come despite the official measure of inflation standing at 5.2% - more than double the MPC's official 2% target - underlining how much the worries over an economic slump have grown.