The Bank of England has cut interest rates to three per cent, the lowest level since 1955, and received immediate praise for the shock move.
The 1.5 per cent cut takes the rate to three per cent, as the Bank attempts to shore up Britain’s struggling economy.
Only last month, the rate dropped from five per cent to 4.5 per cent, and while there had been calls for drastic measures, analysts were caught completely by surprise by the scale of this morning’s announcement.
It is the most dramatic cut since a two percentage point reduction in 1981 and the first time the Bank has cut rates by more than half a percentage point since gaining its independence in 1997.
BBC economics editor Hugh Pym said: "The Bank of England is using terms like 'very marked deterioration in the outlook' and 'severe contraction'.
"It is clearly very concerned about the possibility of a prolonged recession in the UK.
"The risks of high inflation have now evaporated, and because the bank is worried that inflation will now fall well below its target, it has felt the need to come up with this cut, which is much bigger than expected."
The British Retail Consortium welcomed the decision. Director general Stephen Robertson said: “This is the kind of shock tactic that could get the economy’s heart beating again. A more modest cut was widely expected and already largely factored in.
“The Bank has rightly decided bold and decisive action now will have more impact than a staggered downward journey.
“A cut on this scale puts the banks under more pressure to pass the benefits on to borrowers. Base rate reductions can’t achieve much if they don’t help household finances. It should also breathe life into lending between banks.
“This dramatic cut for Christmas could give customers the confidence to spend at what is many retailers’ most important time of the year.”
And Asda ceo Andy Bond said the cut "should go someway towards restoring consumer confidence this side of Christmas”.
He added: "With disposable incomes continuing to fall it is essential that banks and building societies pass on this saving to their customers. Everyone has to play their part and financial institutions are not exempt.
"We are helping drivers make ends meet by cutting the cost of petrol, we are also lowering prices in our stores now that food inflation has peaked," he said.
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