It is the second cut in 2008 and the third cut in five months. The Base Rate now stands at 5%.

The Bank cited rising inflation and the depreciation of the pound on import costs as contributing factors in its decision.

“Credit conditions have tightened and the availability of credit appears to be worsening. While the recent depreciation in sterling will support net exports, the prospects for output growth abroad have deteriorated,” the Bank said.

Nici Audhlam-Gardiner, director of Abbey Mortgages, said: “It is unclear whether the size of the rate cut provides the adrenaline shot needed to restore confidence amongst mortgage borrowers, and ultimately the only customers that are guaranteed to feel the cut are those already on existing tracker deals.

“As banks’ lending costs don't automatically fall when the Base Rate falls, the cut may not immediately feed through to new business rates.”