Dramatic 1.5% Cut in UK Interest Rates

In a dramatic and unexpected move, the Bank of England has the cut the base interest rate by one-and-a-half percentage points to 3%. It now stands at its lowest level since 1955.

Last month the base rate was cut from 5% to 4.5%. There had been widespread calls from industry for a major interest rate cut as the UK faces the prospect of a prolonged recession.

It is the first time the Bank of England has cut rates by more than half a percentage point since it gained its independence from the Government in 1997. The Bank stated that it considers that the risks of high inflation have now disappeared.

The cut should help to improve conditions in the credit markets, and allow banks to reduce their lending rates. Lloyds TSB is the first of the big lenders to promise to pass on the rate cut in full to its variable rate mortgage customers.

The move has been broadly welcomed by business and the trade unions.