1.5 per cent - lowest interest rate in history

Deepest cut: the Bank of England dropped interest rates to an all-time low

INTEREST rates were cut to the lowest level in history today.

The Bank of England ordered a further 0.5 per cent reduction from its base rate to an unprecedented 1.5 per cent.

It has never previously been below two per cent since the Bank was founded in 1694.

But only half of borrowers will benefit and millions of savers will be hit by a further cut in the return on their investments.

The Bank's rate-setting Monetary Policy Committee said in a statement it was making the move because "the world economy appears to be undergoing an unusually sharp and sychronised downturn".

The pound strengthened against the euro after the noon announcement as some City traders had expected a one per cent cut.

Rates have now fallen by two thirds in two months since the severity of the economic storm became apparent in the autumn.

There was immediate scepticism about the effectiveness of the move in boosting the economy.

Many experts said it would do little or nothing to stop the collapse in property values and would not encourage consumers to spend. Analysts said between 40 and 50 per cent of borrowers would benefit.

The vast majority with tracker mortgages will get the full half point passed on. Many on standard variable rates will also benefit as major lenders Cheltenham & Gloucester, LloydsTSB, HSBC and Nationwide said they would pass it on in full.

Business leaders warned that the bigger problem threatening the economy was the lack of lending from banks rather than the cost of borrowing.

Justin King, chief executive of Sainsbury's, told the Standard: "It is up to the Bank of England to do what they think is right, but what our suppliers are saying is that what they have to pay to borrow is not the issue, it is that there is no money being lent in the first place."

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