Bank of England cuts interest rates to 5.25%

The Bank of England has cut the base rate from 5.5% to 5.25% - its lowest level since October, 1999.

It's the third cut this year, bringing down the cost of borrowing from 6% at the start of the year, with knock-on benefits for homeowners and businesses. The Halifax and HSBC banks immediately announced 0.25% cuts in their variable mortgage rates.

The Bank of England's monetary policy committee announced the drop amid worries over the impact on the UK economy of a global slowdown. Manufacturers had been calling for another rates cut after expressing concern over waning output and demand.

Figures released by the Confederation of British Industry onTuesday showed that business confidence was continuing to fall sharply across the UK, adding to pressure for a cut.

Today's move to reduce interest rates again has been welcomed by analysts as a sensible middle course between keeping rates static or risking market panic with a cut to 5%.

Simon Cawdrey, of Barclays Stockbrokers said: "This cut won't cause a lot of excitement, but it will be much appreciated as something which needed doing to stop confidence declining. Manufacturers may gripe that this isn't enough, but the Bank of England has to consider all players."

Simon Rubinsohn, chief economist at Gerrard stockbrokers, said: "This was a sensible course for the bank to take, particularly in the light of the contraction in manufacturing output."

A CBI spokesman said: "This cut is a welcome sign, a timely and proportionate move to stave off the effects of a global slowdown."

David Sears, deputy director-general of the British Chambers of Commerce, said: "The Bank has won the business vote with this decision, the first real test of its independence and ability to rise above the political fray.

"With business already planning to reduce output, this will bring a boost to confidence, and add further insulation against the US slowdown and the wider impact of foot-and-mouth."