The Bank of England took drastic action to boost the economy and stave off recession – shaving interest rates by 0.5% in a move which was cheered by industry and the City.
The reduction takes the cost of borrowing to 4% and is the seventh rate cut by the Bank this year.
It comes against a deteriorating international picture – exacerbated by the September 11 attacks – which is impacting on the UK environment.
The European Central Bank followed suit with a similar rate cut, and building societies fell into line announcing cuts in the cost of borrowing.
And although economists expect Britain to escape recession, they agree the UK is in for a slowdown – highlighted by figures this week showing a further slump in the manufacturing and service industries.
In addition, consumer confidence is showing signs of taking a knock, with recent surveys showing house prices fell last month while the high street sales boom is beginning to fade.
Today's rate cut – which follows the US's Federal Reserve's move on Tuesday to cut 0.5% from rates in America – will also be cheered by homeowners, who will see the cost of their mortgage shaved.
Mortgage bank Halifax said a half–point cut would take £17.70 off a £60,000 repayment mortgage, reducing monthly payments to £350.75 – its lowest since October 1955.
The cut also means rates are at their lowest since January 1964, when they were at 4% before being hiked up to 5% in February 1964.
TUC general secretary John Monks said: "This cut will act as an insurance policy against the global recession and help sustain domestic demand and confidence.
"It will also take some of the pressure off our manufacturing sector, which has been hardest hit by the economic downturn."
Roger Lyons, general secretary of the Manufacturing Science and Finance union said: "At last the MPC has woken up to the gravity of the situation facing the UK economy.
"Thousands of jobs are still at risk and another cut will be needed before Christmas."
The Institute of Directors said the cut was unexpected but welcome.
Head of Policy Ruth Lea said: "We do not think the move was rash or irresponsible as the inflationary situation is very benign."
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