Similar cuts have also been made today by the Bank of Canada, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank. The decisions have been supported by the Bank of Japan.

In a statement released in conjunction with these central banks, the Bank of England said that in light of the current financial crisis and an easing in inflationary pressures, “some easing of global monetary conditions is therefore warranted”.

Inflation in the UK, however, rose to 4.7 per cent in August and the bank said it’s likely to rise above 5 per cent in the next month or two. “But inflation should then drop back, as the contribution from retail energy prices wanes and the margin of spare capacity in the economy increases.  Pay growth has so far remained subdued and commodity price pressures have eased, with oil prices down substantially from their mid-summer peak,” the bank said.

Confederation of British Industry Deputy Director-General John Cridland called the rate cut “essential and timely”.

He said: “We have now seen major steps by both the government and the Bank of England to support the economy and the financial system. These will be welcomed by business, and will help the economy at a critical time.

“We also applaud the coordinated interest rate cuts by key central banks, which will benefit the global economy and stabilise financial markets.”

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