The Bank of England has made an unexpected move by cutting interest rates by 1.5 percentage points to 3%, the lowest rate since 1955.

Last month The Bank of England cut rates by half a percentage point from 5% to 4.5% in a co-ordinated move with other central banks around the world.

Industies has called for a significant cut as the country began preparing for a deep recession.

The cut is the the most dramatic since 1981 when The Bank of England cut rates by two percentage points.

This is the first time the Bank has slashed rates by more than half a percentage point since it gained  independence 11 years ago.
The Bank is obviously very concerned about the possibility of a prolonged recession in the UK.

The cut has come as a surprise to many economists, who were expecting a cut of half a percentage point, or one at most.

Business bodies and trade unions have welcomed the cut.

Richard Lambert, CBI director-general, said: "This is a bold and welcome move by the Monetary Policy Committee, and achieves what the CBI had been calling for. This cut should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers."

The TUC's head of economics Adam Lent said: “[the move was] the right call. It shows the Bank now understands that the problem is recession not inflation."

The Institute of Directors have predicted that interest rates could reach record lows of 2% or less by late next year.

IoD chief economist Graeme Leach said: "The sooner we get interest rates down the less is the risk of a long and deep recession.”
There have been concerns that The Bank of England's rate cut will not be passed on to borrowers.

Prime Minister Gordon Brown flagged this potential problem in the House of Commons yesterday saying: "We want the banks and building societies to pass on the interest rate cuts to their mortgage holders". This came after Abbey surprised many by raising its tracker mortgage rates for new customers.

"What we've been trying to do over the last few weeks is get the liquidity into the system, recapitalise our banks and then get them to resume the lending that is necessary." he said.

However Lloyds TSB has assured it will pass on the full rate cut to its variable rate mortgage customers.

The group, which also provides mortgages through Cheltenham & Gloucester says its standard variable rate, currently at 6.5%, will never climb more than 2% above the Bank of England base rate.

Published by Sam Gooch