Borrowers breathed a sigh of relief after Bank of England rate setters trimmed the cost of borrowing by a quarter point to 5.25%.
The cut - the second in three months - comes as consumers increasingly struggle against tighter borrowing conditions amid the credit crunch.
Businesses and retailers welcomed the move, although some were left disappointed that the Bank had not made a more dramatic cut.
The Bank's Monetary Policy Committee (MPC) said the UK was seeing slowing growth and a drop in consumer spending, with households and businesses hit by the credit squeeze.
But it cautioned that soaring oil prices and higher energy bills may send inflation "sharply" higher in the coming months, highlighting the difficult balancing act faced by the MPC.
A raft of mortgage lenders were quick to announce they would be passing on the interest rate cut in full. Halifax, Nationwide, Abbey and Royal Bank of Scotland/NatWest were among those to confirm a 0.25% reduction in their standard variable rates.
There had been concerns that mortgage firms would fail to pass on the cut as the credit crisis has caused wholesale money market costs to soar.
Lenders' decisions to shave rates by a quarter-point will reduce monthly repayments on a typical £100,000 mortgage by around £16 a month to £722.80, based on a new rate of 7.25%.
The boost to households is much-needed at a time of soaring oil, food and higher energy costs, with E.ON becoming the latest to announce double digit increases in gas and electricity prices.
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The Bank of England cautioned in a statement accompanying its decision that inflationary pressures could see the Consumer Prices Index (CPI) rise further above its 2% target.
