Interest rates cut to 5.25%
The Bank of England has cut interest rates from 5.5% to 5.25% in a bid to spark growth in the economy.
The move will benefit homeowners and borrowers and is designed to ease fears over the credit crunch.
But inflation rose to 2.1% in December and is expected to rise sharply in the months ahead due to higher energy and food prices.
One banking source said: "This means your average punter, with a variable rate or tracker mortgage, will have more disposable income to spend on eating and drinking out.
"Equally if licensees have loans or mortgages of their own it could free up cash for improvements in the business."
The British Retail Consortium welcomed the news. "Having rejected a January rate cut, the Bank is right to act now to refuel the faltering economy and ensure it doesn't stall," said BRC director general Stephen Robertson.
"Household bills are rising and there are job fears. Without a series of reviving rate cuts, consumer pessimism risks becoming self-fulfilling.
"Discounting moved up a gear over the last three months. Many retailers are suffering as costs rise much faster than selling prices, so job cuts could be forced upon retailers under pressure."
