Interest rates cut by 0.5%

The Bank of England has cut interest rates by 0.5% to 4.5% in a co-ordinated approach with the US, Europe, Canada, China, Sweden and Switzerland.

The move is designed to spark growth in the economy and will benefit homeowners and borrowers but will only have an effect if the banks pass on the rate cut.

The upshot could be customers with more money in their pockets and licensees with more money to invest in their business.

One banking source said: "This move is twofold — primarily it is aimed at easing the strain on the wholesale money markets and secondly at stimulating life into a mortgage market that has seen the number of available loans drying up and the cost of those loans rising.

"The rate cut will hopefully go some way towards reversing the decline in household spending by reducing the cost of mortgages and other borrowing, thereby freeing up cash for other means.

"That is assuming the banks pass on the rate cut but these things are not as straight forward as they used to be."

Federation of Small Businesses chairman John Wright welcomed the move. "This should be very helpful to Britain's small businesses but the welcome cut will only come into play if the banks follow through and reduce their charges to small businesses accordingly.

"We would urge the Government, now that it has a stake in the banks, to ensure all base rate cuts announced by the Bank of England are honoured by the clearers."